Quarterly Report (10-q)

Date : 11/01/2019 @ 3:49PM
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: September 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)

 

4,337,803 (Shares Outstanding as of November 1, 2019) 




 

 

DNB FINANCIAL CORPORATION AND SUBSIDIARY





INDEX



                                                                



 

 

 

 

 



 

PART  I - FINANCIAL INFORMATION

PAGE NO.



 

 

 

ITEM 1.      

 

FINANCIAL STATEMENTS (Unaudited):

 



 

 

 



 

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

 



 

September 30, 2019 and December 31, 2018



 

 

 



 

CONSOLIDATED STATEMENTS OF INCOME

 



 

Three and Nine Months Ended September 30, 2019 and 2018



 

 

 



 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 



 

Three and Nine Months Ended September 30, 2019 and 2018



 

 

 



 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY



 

Three and Nine Months Ended September 30, 2019 and 2018

 



 

 

 



 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 



 

Nine Months Ended September 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)







 

 

 

 

 



 

 

 

 

 



September 30,

 

December 31,

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

2019

 

2018

Assets

 

 

 

 

 

Cash and due from banks

$

19,722 

 

$

17,321 

Cash and cash equivalents

 

19,722 

 

 

17,321 

Available-for-sale investment securities at fair value (amortized cost of $65,716 and $98,765)

 

65,454 

 

 

96,643 

Held-to-maturity investment securities (fair value of $57,884 and $61,135)

 

57,491 

 

 

62,026 

Total investment securities

 

122,945 

 

 

158,669 

Loans held for sale

 

259 

 

 

419 

Loans

 

923,949 

 

 

934,971 

Allowance for credit losses

 

(6,853)

 

 

(6,675)

Net loans

 

917,096 

 

 

928,296 

Restricted stock

 

5,760 

 

 

5,616 

Office property and equipment, net

 

7,049 

 

 

7,636 

Operating lease right-of-use asset

 

3,605 

 

 

 -

Accrued interest receivable

 

4,122 

 

 

4,207 

Other real estate owned & other repossessed property

 

2,848 

 

 

5,051 

Bank owned life insurance (BOLI)

 

9,690 

 

 

9,530 

Core deposit intangible

 

281 

 

 

343 

Goodwill

 

15,525 

 

 

15,525 

Net deferred taxes

 

2,496 

 

 

2,762 

Other assets

 

2,096 

 

 

2,860 

Total assets 

$

1,113,494 

 

$

1,158,235 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Liabilities

 

 

 

 

 

Non-interest-bearing deposits

$

174,341 

 

$

164,746 

Interest-bearing deposits:

 

 

 

 

 

NOW

 

204,646 

 

 

236,071 

Money market

 

225,549 

 

 

235,023 

Savings

 

76,903 

 

 

77,979 

Time

 

187,805 

 

 

162,096 

Brokered deposits

 

62,873 

 

 

108,651 

Total deposits 

 

932,117 

 

 

984,566 

Federal Home Loan Bank of Pittsburgh (FHLBP) advances

 

31,188 

 

 

32,935 

Junior subordinated debentures

 

9,279 

 

 

9,279 

Subordinated debt

 

9,750 

 

 

9,750 

Other borrowings

 

254 

 

 

3,305 

Total borrowings

 

50,471 

 

 

55,269 

Accrued interest payable

 

545 

 

 

646 

Other liabilities

 

5,259 

 

 

5,908 

Operating lease liability

 

3,989 

 

 

 -

Total liabilities 

 

992,381 

 

 

1,046,389 

Stockholders’ Equity

 

 

 

 

 

Common stock, $1.00 par value;

 

 

 

 

 

20,000,000 shares authorized; 4,382,223 and 4,381,872 issued, respectively; 4,334,782 and 4,321,745 outstanding, respectively

 

4,382 

 

 

4,391 

Treasury stock, at cost; 47,441 and 60,127 shares, respectively

 

(903)

 

 

(1,130)

Surplus

 

69,778 

 

 

69,333 

Retained earnings

 

49,357 

 

 

42,223 

Accumulated other comprehensive loss

 

(1,501)

 

 

(2,971)

Total stockholders’ equity 

 

121,113 

 

 

111,846 

Total liabilities and stockholders’ equity 

$

1,113,494 

 

$

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

 

Nine Months Ended



September 30,

 

September 30,

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

2019

 

2018

 

2019

 

2018

Interest Income:

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

$

11,137 

 

$

10,588 

 

$

33,785 

 

$

30,634 

Interest and dividends on investment securities:

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

630 

 

 

754 

 

 

2,253 

 

 

2,409 

Exempt from federal taxes

 

207 

 

 

219 

 

 

634 

 

 

654 

Interest on cash and cash equivalents

 

271 

 

 

74 

 

 

452 

 

 

140 

Total interest and dividend income

 

12,245 

 

 

11,635 

 

 

37,124 

 

 

33,837 

Interest Expense:

 

 

 

 

 

 

 

 

 

 

 

Interest on NOW, money market and savings

 

1,161 

 

 

998 

 

 

3,321 

 

 

2,822 

Interest on time deposits

 

1,014 

 

 

579 

 

 

2,758 

 

 

1,237 

Interest on brokered deposits

 

494 

 

 

457 

 

 

1,697 

 

 

1,070 

Interest on FHLB advances

 

138 

 

 

199 

 

 

508 

 

 

739 

Interest on repurchase agreements

 

 -

 

 

 

 

 -

 

 

14 

Interest on junior subordinated debentures

 

122 

 

 

122 

 

 

378 

 

 

340 

Interest on subordinated debt

 

104 

 

 

104 

 

 

311 

 

 

311 

Interest on other borrowings

 

 

 

23 

 

 

35 

 

 

58 

Total interest expense

 

3,042 

 

 

2,484 

 

 

9,008 

 

 

6,591 

Net interest income

 

9,203 

 

 

9,151 

 

 

28,116 

 

 

27,246 

Provision for credit losses

 

325 

 

 

100 

 

 

625 

 

 

850 

Net interest income after provision for credit losses

 

8,878 

 

 

9,051 

 

 

27,491 

 

 

26,396 

Non-interest Income:

 

 

 

 

 

 

 

 

 

 

 

Service charges

 

251 

 

 

274 

 

 

788 

 

 

848 

Wealth management

 

514 

 

 

542 

 

 

1,488 

 

 

1,489 

Mortgage banking

 

70 

 

 

56 

 

 

216 

 

 

193 

Increase in cash surrender value of BOLI

 

55 

 

 

54 

 

 

160 

 

 

158 

Gain on sale of investment securities, net

 

121 

 

 

 -

 

 

125 

 

 

 -

Gain on sale of loans

 

 -

 

 

27 

 

 

 -

 

 

37 

Gains from insurance proceeds

 

 -

 

 

 

 

 -

 

 

Other fees

 

472 

 

 

410 

 

 

1,324 

 

 

1,243 

Total non-interest income

 

1,483 

 

 

1,371 

 

 

4,101 

 

 

3,976 

Non-interest Expense:

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

3,602 

 

 

3,709 

 

 

11,240 

 

 

11,742 

Furniture and equipment

 

548 

 

 

564 

 

 

1,752 

 

 

1,603 

Occupancy

 

653 

 

 

656 

 

 

2,005 

 

 

1,987 

Professional and consulting

 

411 

 

 

484 

 

 

1,428 

 

 

1,311 

Advertising and marketing

 

97 

 

 

182 

 

 

517 

 

 

568 

FDIC insurance

 

(7)

 

 

123 

 

 

202 

 

 

363 

PA shares tax

 

259 

 

 

242 

 

 

779 

 

 

727 

Telecommunications

 

89 

 

 

89 

 

 

267 

 

 

254 

Loss on sale or write down of OREO, net

 

15 

 

 

11 

 

 

165 

 

 

151 

Transaction costs

 

362 

 

 

 -

 

 

881 

 

 

 -

Other expenses

 

707 

 

 

713 

 

 

2,290 

 

 

2,337 

Total non-interest expense

 

6,736 

 

 

6,773 

 

 

21,526 

 

 

21,043 

Income before income tax expense

 

3,625 

 

 

3,649 

 

 

10,066 

 

 

9,329 

Income tax expense

 

755 

 

 

629 

 

 

2,022 

 

 

1,647 

Net income

$

2,870 

 

$

3,020 

 

$

8,044 

 

$

7,682 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.66 

 

$

0.70 

 

$

1.86 

 

$

1.79 

Diluted

$

0.66 

 

$

0.70 

 

$

1.86 

 

$

1.78 

Cash dividends per common share

$

0.07 

 

$

0.07 

 

$

0.21 

 

$

0.21 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 Basic

4,334,649 

 

4,307,402 

 

4,331,026 

 

4,298,987 

 Diluted

4,341,010 

 

4,317,553 

 

4,335,792 

 

4,313,638 

See accompanying notes to unaudited consolidated financial statements.

4

 


 

 

DNB Financial Corporation and Subsidiary

Consolidated Statements of Comprehensive Income (Unaudited)







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Nine Months Ended



September 30,

 

September 30,

(Dollars in thousands)

2019

 

2018

 

2019

 

2018

Net income

$

2,870 

 

$

3,020 

 

$

8,044 

 

$

7,682 

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) arising during the period

 

 

 

 

 

 

 

 

 

 

 

Before tax amount

 

269 

 

 

(163)

 

 

1,916 

 

 

(1,412)

Tax effect

 

(58)

 

 

34 

 

 

(402)

 

 

296 



 

211 

 

 

(129)

 

 

1,514 

 

 

(1,116)

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

 

 

 

 

 

 

 

 

 

 

 

Before tax amount(1)

 

(56)

 

 

 -

 

 

(57)

 

 

 -

Tax effect(2)

 

13 

 

 

 -

 

 

13 

 

 

 -



 

(43)

 

 

 -

 

 

(44)

 

 

 -

Total other comprehensive income (loss)

 

168 

 

 

(129)

 

 

1,470 

 

 

(1,116)

Total comprehensive income

$

3,038 

 

$

2,891 

 

$

9,514 

 

$

6,566 

(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 July 1, 2019

$

4,382 

$

(961)

$

69,613 

$

46,791 

$

(1,669)

$

118,156 

Net income for three months ended September 30, 2019

 

 -

 

 -

 

 -

 

2,870 

 

 -

 

2,870 

Other comprehensive income

 

 -

 

 -

 

 -

 

 -

 

168 

 

168 

Restricted stock compensation expense (351 shares vested)

 

 -

 

 -

 

82 

 

 -

 

 -

 

82 

Taxes on exercise of stock options

 

 -

 

 -

 

(8)

 

 -

 

 -

 

(8)

Cash dividends - common ($0.07 per share)

 

 -

 

 -

 

 -

 

(304)

 

 -

 

(304)

Non-cash funding of 401(k) (2,202 shares)

 

 -

 

39 

 

60 

 

 -

 

 -

 

99 

Non-cash funding of deferred comp. plan (1,108 shares)

 

 -

 

19 

 

31 

 

 -

 

 -

 

50 

Balance at September 30, 2019

$

4,382 

$

(903)

$

69,778 

$

49,357 

$

(1,501)

$

121,113 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

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 nine months ended September 30, 2019

 

 -

 

 -

 

 -

 

8,044 

 

 -

 

8,044 

Other comprehensive income

 

 -

 

 -

 

 -

 

 -

 

1,470 

 

1,470 

Restricted stock compensation expense (351 shares vested)

 

(9)

 

 -

 

234 

 

 -

 

 -

 

225 

Taxes on exercise of stock options

 

 -

 

 -

 

(8)

 

 -

 

 -

 

(8)

Cash dividends - common ($0.21 per share)

 

 -

 

 -

 

 -

 

(910)

 

 -

 

(910)

Non-cash funding of 401(k) (8,468 shares)

 

 -

 

153 

 

143 

 

 -

 

 -

 

296 

Non-cash funding of deferred comp. plan (4,218 shares)

 

 -

 

74 

 

76 

 

 -

 

 -

 

150 

Balance at September 30, 2019

$

4,382 

$

(903)

$

69,778 

$

49,357 

$

(1,501)

$

121,113 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Accumulated

 

 



 

 

 

 

 

 

 

 

Other

 

 



Common

Treasury

 

 

Retained

Comprehensive

 

 

(Dollars in thousands)

Stock

Stock

Surplus

Earnings

Loss

Total

Balance at July 1, 2018

$

4,385 

$

(1,276)

$

69,268 

$

36,804 

$

(3,848)

$

105,333 

Net income for three months ended September 30, 2018

 

 -

 

 -

 

 -

 

3,020 

 

 -

 

3,020 

Other comprehensive loss

 

 -

 

 -

 

 -

 

 -

 

(129)

 

(129)

Restricted stock compensation expense (no shares vested)

 

 

 -

 

64 

 

 -

 

 -

 

66 

Exercise of stock options (5,460 shares)

 

 

 -

 

(6)

 

 -

 

 -

 

 -

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

 

 -

 

 -

 

(86)

 

 -

 

 -

 

(86)

Cash dividends - common ($0.07 per share)

 

 -

 

 -

 

 -

 

(301)

 

 -

 

(301)

Non-cash funding of 401(k) (3,170 shares)

 

 -

 

57 

 

53 

 

 -

 

 -

 

110 

Non-cash funding of deferred comp. plan (1,332 shares)

 

 -

 

23 

 

23 

 

 -

 

 -

 

46 

Balance at September 30, 2018

$

4,393 

$

(1,196)

$

69,316 

$

39,523 

$

(3,977)

$

108,059 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

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 nine months ended September 30, 2018

 

 -

 

 -

 

 -

 

7,682 

 

 -

 

7,682 

Other comprehensive loss

 

 -

 

 -

 

 -

 

 -

 

(1,116)

 

(1,116)

Restricted stock compensation expense (4,908 shares vested)

 

10 

 

 -

 

260 

 

 -

 

 -

 

270 

Exercise of stock options (7,798 shares)

 

 

 -

 

(8)

 

 -

 

 -

 

 -

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

 

(4)

 

 -

 

(262)

 

 -

 

 -

 

(266)

Cash dividends - common ($0.21 per share)

 

 -

 

 -

 

 -

 

(902)

 

 -

 

(902)

Non-cash funding of 401(k) (8,828 shares)

 

 -

 

159 

 

145 

 

 -

 

 -

 

304 

Non-cash funding of deferred comp. plan (4,209 shares)

 

 -

 

74 

 

71 

 

 -

 

 -

 

145 

Adoption impact - ASU 2018-02

 

 -

 

 -

 

 -

 

471 

 

(471)

 

 -

Balance at September 30, 2018

$

4,393 

$

(1,196)

$

69,316 

$

39,523 

$

(3,977)

$

108,059 

See accompanying notes to unaudited consolidated financial statements.

6

 


 

 

DNB Financial Corporation and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)







 

 

 

 

 



Nine Months Ended September 30,

(Dollars in thousands)

2019

 

2018

Cash Flows From Operating Activities:

 

 

 

 

 

Net income

$

8,044 

 

$

7,682 

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

 

 

 

 

 

Depreciation, amortization and accretion

 

1,015 

 

 

1,144 

Provision for credit losses

 

625 

 

 

850 

Stock based compensation

 

225 

 

 

270 

Non-cash funding of retirement plans

 

446 

 

 

449 

Net gain on sale of securities

 

(125)

 

 

 -

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

 

165 

 

 

151 

Gain on insurance proceeds

 

 -

 

 

(8)

Earnings from investment in BOLI

 

(160)

 

 

(158)

Deferred tax (benefit) expense

 

(125)

 

 

193 

Proceeds from sales of mortgage loans

 

11,828 

 

 

11,088 

Mortgage loans originated for sale

 

(11,452)

 

 

(10,244)

Gain on sale of mortgage loans

 

(216)

 

 

(193)

Proceeds from sales of loans

 

 -

 

 

805 

Loans originated for sale

 

 -

 

 

(768)

Gain on sale of loans

 

 -

 

 

(37)

Write off of property and equipment

 

 

 

 -

Decrease (increase) in accrued interest receivable

 

85 

 

 

(388)

Decrease (increase) in other assets

 

1,144 

 

 

(230)

(Decrease) increase in accrued interest payable

 

(101)

 

 

(Decrease) increase in other liabilities

 

(649)

 

 

581 

Amortization of operating lease right-of-use asset

 

558 

 

 

 -

Accretion of operating lease liability

 

(554)

 

 

 -

Net Cash Provided by Operating Activities

 

10,756 

 

 

11,190 

Cash Flows From Investing Activities:

 

 

 

 

 

Activity in available-for-sale securities:

 

 

 

 

 

Sales

 

16,715 

 

 

 -

Maturities, repayments and calls

 

47,754 

 

 

10,976 

Purchases

 

(31,546)

 

 

 -

Activity in held-to-maturity securities:

 

 

 

 

 

Maturities, repayments and calls

 

4,707 

 

 

413 

Net (increase) decrease in restricted stock

 

(144)

 

 

1,777 

Net decrease (increase) in loans

 

9,923 

 

 

(62,848)

Death benefit proceeds

 

 -

 

 

Purchases of property and equipment

 

(289)

 

 

(164)

Purchase of third party ownership in OREO

 

(165)

 

 

 -

Proceeds from sale of OREO and other repossessed property

 

2,855 

 

 

102 

Net Cash Provided By (Used In) Investing Activities

 

49,810 

 

 

(49,736)

Cash Flows From Financing Activities:

 

 

 

 

 

Net (decrease) increase in deposits

 

(52,449)

 

 

78,678 

Repayment of FHLBP advances

 

(66,747)

 

 

(226,661)

Funding of FHLBP advances

 

65,000 

 

 

184,600 

Net decrease in repurchase agreements

 

 -

 

 

(7,934)

(Decrease) increase in other borrowings

 

(3,051)

 

 

10,816 

Dividends paid

 

(910)

 

 

(902)

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

 

(8)

 

 

(266)

Net Cash (Used in) Provided by Financing Activities

 

(58,165)

 

 

38,331 

Net Change in Cash and Cash Equivalents 

 

2,401 

 

 

(215)

Cash and Cash Equivalents at Beginning of Period 

 

17,321 

 

 

10,917 

Cash and Cash Equivalents at End of Period 

$

19,722 

 

$

10,702 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

$

9,109 

 

$

6,588 

Income taxes

 

1,301 

 

 

975 

Supplemental Disclosure of Non-cash Flow Information:

 

 

 

 

 

Transfers from loans to real estate owned and other repossessed property

 

652 

 

 

318 

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 nine months ended September 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, 2018



Subsequent Events-- Management has evaluated events and transactions occurring subsequent to September 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

 

Nine Months Ended



September 30,

 

September 30,

(Dollars in thousands)

2019

 

2018

 

2019

 

2018

Non-interest Income:

 

 

 

 

 

 

 

 

 

 

 

Service charges:

 

 

 

 

 

 

 

 

 

 

 

Non-sufficient funds charges

$

132 

 

$

157 

 

$

387 

 

$

458 

Business analysis charges

 

45 

 

 

42 

 

 

137 

 

 

127 

Cycle charges

 

24 

 

 

24 

 

 

65 

 

 

69 

Lockbox fees

 

 

 

 

 

59 

 

 

54 

Stop payment fees

 

 

 

 

 

14 

 

 

12 

Wire transfer fees

 

22 

 

 

23 

 

 

66 

 

 

66 

Other service charges

 

21 

 

 

21 

 

 

60 

 

 

62 

Total service charges

 

251 

 

 

274 

 

 

788 

 

 

848 

Wealth management:

 

 

 

 

 

 

 

 

 

 

 

DNB Investments & Insurance

 

109 

 

 

185 

 

 

311 

 

 

423 

DNB First Investment Management & Trust

 

405 

 

 

357 

 

 

1,177 

 

 

1,066 

Total wealth management

 

514 

 

 

542 

 

 

1,488 

 

 

1,489 

Other fee income:

 

 

 

 

 

 

 

 

 

 

 

Cardholder interchange fees

 

282 

 

 

257 

 

 

821 

 

 

771 

Safe deposit box

 

23 

 

 

24 

 

 

70 

 

 

74 

Check printing

 

15 

 

 

14 

 

 

52 

 

 

49 

Merchant card processing

 

41 

 

 

44 

 

 

128 

 

 

134 

ATM surcharges for non-DNB customers

 

16 

 

 

19 

 

 

48 

 

 

56 

Other fee income

 

11 

 

 

13 

 

 

37 

 

 

40 

Total other fee income

 

388 

 

 

371 

 

 

1,156 

 

 

1,124 

Total Revenue from contracts with customers

 

1,153 

 

 

1,187 

 

 

3,432 

 

 

3,461 

Total Revenue not within the scope of ASC 606

 

330 

 

 

184 

 

 

669 

 

 

515 

Total non-interest income

$

1,483 

 

$

1,371 

 

$

4,101 

 

$

3,976 



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 provider 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 September 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. The adoption of ASU 2016-02 resulted in the recognition of operating lease liabilities of $4.4 million and right-of-use asset of $4.0 million. The 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 adopted the use-of-hindsight practical expedient. 



DNB recognized rent expense associated with our leases as follows:







 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Nine Months Ended



September 30,

 

September 30,

(Dollars in thousands)

2019

 

2018