-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D2AmGhVKfI6EYsLpDgK9qEnKXJzN1Johsa7/89Db612/gswqy6ow/RsLxtBVU/CR xHcsyVyG/L1nnMTYOxxKAQ== 0000713671-96-000003.txt : 19960816 0000713671-96-000003.hdr.sgml : 19960816 ACCESSION NUMBER: 0000713671-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960815 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DNB FINANCIAL CORP /PA/ CENTRAL INDEX KEY: 0000713671 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 232222567 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16667 FILM NUMBER: 96615568 BUSINESS ADDRESS: STREET 1: 4 BRANDYWINE AVE CITY: DOWNINGTOWN STATE: PA ZIP: 19335 BUSINESS PHONE: 6102691040 MAIL ADDRESS: STREET 1: 4 BRANDYWINE AVENUE CITY: DOWNINGTOWN STATE: PA ZIP: 19335 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended: June 30, 1996 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: 0-16667 DNB Financial Corporation (Exact name of registrant as specified in its charter) Pennsylvania 23-2222567 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 4 Brandywine Avenue - Downingtown, PA 19335 (Address of principal executive offices and Zip Code) (610) 269-1040 (Registrant's telephone number, including area code) 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. [X] 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 ($10.00 Par Value) 658,793 (Class) (Shares Outstanding as of August 14, 1996) - --------------------------------------------------------------------------- DNB FINANCIAL CORPORATION AND SUBSIDIARY INDEX PART I - FINANCIAL INFORMATION PAGE NO. ITEM 1. FINANCIAL STATEMENTS: CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION June 30, 1996 and December 31, 1995 3 CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended June 30, 1996 and 1995 4 CONSOLIDATED STATEMENTS OF OPERATIONS Six Months Ended June 30, 1996 and 1995 5 CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, 1996 and 1995 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 and December 31, 1995 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 17 ITEM 2. CHANGE IN SECURITIES 17 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 17 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF 17 SECURITY HOLDERS ITEM 5. OTHER INFORMATION 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17 SIGNATURES 18 Consolidated Statements of Financial Condition
June 30, December 31, 1996 1995 Assets Cash and due from banks .................. $9,415,894 $8,154,175 Federal funds sold ............................ 1,293,000 7,640,000 Securities available for sale (cost $16,683,147 in 1996 and $13,271,018 in 1995) ........... 16,507,896 13,339,451 Investment securities (market value $48,726,802 in 1996 and $38,943,606 in 1995) ........... 49,569,088 38,450,977 Loans ......................................... 116,270,296 118,307,769 Less: Unearned discount on installment loans ..... (311,475) (422,358) Allowance for possible loan losses ......... (5,245,700) (5,514,600) ------------- ------------- Net loans ..................................... 110,713,121 112,370,811 ------------- ------------- Office property and equipment, net ............ 4,135,129 4,252,253 Accrued interest receivable ................... 1,616,175 1,648,186 Other real estate owned ....................... 1,536,287 810,263 Deferred income tax asset ..................... 1,060,312 1,034,520 Other assets .................................. 1,181,494 1,080,402 ------------- ------------- Total assets .................................. $ 197,028,396 $ 188,781,038 ============= ============ Liabilities and Stockholders' Equity Liabilities Non-interest-bearing deposits ................. $ 25,175,739 $ 22,936,240 Interest-bearing deposits: NOW ........................................ 27,251,532 27,484,736 Money market ............................... 17,299,878 16,333,386 Savings .................................... 29,504,375 29,223,690 Time ....................................... 74,549,453 69,030,876 ------------- ------------- Total deposits ................................ 173,780,977 165,008,928 ------------- ------------- Repurchase agreements ......................... 6,960,897 8,218,709 Accrued interest payable ...................... 471,758 458,943 Other liabilities ............................. 792,053 739,499 ------------- ------------- Total liabilities ............................. 182,005,685 174,426,079 ------------- ------------- Stockholders' Equity Preferred stock, $10.00 par value; 1,000,000 shares authorized; none issued ... -- -- Common stock, $10.00 par value; 5,000,000 shares authorized; 658,793 issued and outstanding ............. 6,587,930 6,587,930 Surplus ....................................... 4,295,289 4,112,869 Retained earnings ............................. 4,295,466 3,592,242 Net unrealized (loss) gain on securities available for sale, net of tax ............. (155,974) 61,918 ------------- ------------- Total stockholders' equity .................... 15,022,711 14,354,959 ------------- ------------- Total liabilities and stockholders' equity .... $ 197,028,396 $ 188,781,038 ============= =============
See accompanying notes to consolidated financial statements. Consolidated Statements of Operations
For Three Months Ended June 30 1996 1995 Interest Income: Interest and fees on loans $2,621,338 $2,656,961 Interest on investment securities: Taxable 1,022,789 766,944 Interest on Federal funds sold 115,494 77,125 -------- -------- Total interest income 3,759,621 3,501,030 -------- -------- Interest Expense: Interest on time deposits 1,011,398 858,156 Interest on NOW, money market and savings 465,203 515,328 Interest on repurchase agreements 95,673 41,846 Interest on Federal funds purchased -- 361 -------- -------- Total interest expense 1,572,274 1,415,691 --------- -------- Net interest income 2,187,347 2,085,339 -------- -------- Provision for possible loan losses -- 52 Net interest income after provision for possible loan losses . 2,187,347 2,085,287 -------- -------- Non-interest Income: Service charges 73,813 79,501 Trust income 59,801 67,151 Other 57,646 49,861 -------- -------- Total non-interest income 191,260 196,513 -------- -------- Non-interest Expense: Salaries and employee benefits 932,674 943,732 Occupancy 96,293 113,208 Furniture and equipment 155,424 206,777 FDIC insurance 12,021 105,974 Professional and consulting 72,786 130,828 Printing and supplies 63,244 53,895 Insurance 31,962 48,935 Advertising and marketing 64,455 68,436 PA shares tax 34,782 34,931 Postage 23,039 24,252 Other 155,279 134,600 -------- -------- Total non-interest expense 1,641,959 1,865,568 -------- -------- Income before income taxes 736,648 416,232 Income tax expense 140,000 -- -------- -------- Net income $ 596,648 $ 416,232 ======== ======== Common Share Data: Net income per share $ 0.91 $ 0.63 Cash dividends per share 0.15 0.05 Weighted average number of common shares outstanding 658,793 658,793 ======== ========
See accompanying notes to consolidated financial statements. Consolidated Statements of Operations For Six Months Ended June 30 1996 1995
Interest Income: Interest and fees on loans $5,270,518 $5,149,062 Interest on investment securities: Taxable 1,905,942 1,473,524 Exempt from Federal taxes -- 483 Interest on Federal funds sold 218,043 96,562 ---------- ---------- Total interest income 7,394,503 6,719,631 ---------- ---------- Interest Expense: Interest on time deposits 1,997,544 1,559,310 Interest on NOW, money market and savings 947,912 1,036,746 Interest on repurchase agreements 188,751 59,818 Interest on Federal funds purchased 999 7,418 ---------- ---------- Total interest expense 3,135,206 2,663,292 ---------- ---------- Net interest income 4,259,297 4,056,339 ---------- ---------- Provision for possible loan losses -- 114 Net interest income after provision for possible loan losses . 4,259,297 4,056,225 ---------- ---------- Non-interest Income: Service charges 153,038 162,613 Trust income 129,860 148,472 Other 101,399 94,407 ---------- ---------- Total non-interest income 384,297 405,492 ---------- ---------- Non-interest Expense: Salaries and employee benefits 1,887,729 1,825,134 Occupancy 219,526 221,004 Furniture and equipment 325,074 422,209 FDIC insurance 23,720 211,947 Professional and consulting 153,711 207,285 Printing and supplies 120,678 125,580 Insurance 64,492 100,244 Advertising and marketing 106,071 124,758 PA shares tax 69,563 70,575 Postage 66,781 57,980 Other 312,908 298,976 ---------- ---------- Total non-interest expense 3,350,253 3,665,692 ---------- ---------- Income before income taxes 1,293,341 796,025 Income tax expense 243,000 -- ---------- ---------- Net income $1,050,341$ 796,025 ========== ========== Common Share Data: Net income per share $ 1.59 $ 1.21 Cash dividends per share 0.25 0.10 Weighted average number of common shares outstanding 658,793 658,793
See accompanying notes to consolidated financial statements. Consolidated Statements of Cash Flows
For Six Months Ended June 30 1996 1995 Net income $ 1,050,341 $ 796,025 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 173,745 126,743 Provision for possible loan losses -- 114 Provision for OREO -- 7,254 Loss on sale of securities -- 2,387 Decrease (increase) in interest receivable 32,011 (327,958) Increase in other assets, net (101,092) (458,081) Increase in interest payable 12,815 86,900 Decrease in current taxes payable (17,000) (150,259) Increase (decrease) in other liabilities 69,554 (2,477) Decrease in unearned discount (110,883) (187,319) ------------ ------------ Net Cash Provided (Used) By Operating Activities 1,109,491 (106,671) ------------ ------------ Cash Flows From Investing Activities: Proceeds from maturities of securities 16,946,969 12,123,212 Purchase of securities AFS (8,223,388) -- Purchase of securities HTM (23,217,460) (15,941,582) Proceeds from sale of AFS securities -- 1,974,999 Proceeds from sale of HTM securities -- 2,993,906 Proceeds from sale of OREO -- 110,200 Net decrease (increase) in loans 1,042,549 (4,433,679) Proceeds from sales of bank property & equipment 13,340 -- Purchase of bank property and equipment (106,322) (191,669) ------------ ------------ Net Cash Used By Investing Activities (13,544,312) (3,364,613) ------------ ------------ Cash Flows From Financing Activities: Net increase in deposits 8,772,049 9,627,127 (Decrease) increase in repurchase agreements (1,257,812) 3,690,427 Dividends paid (164,697) (66,865) ------------ ------------ Net Cash Provided By Financing Activities 7,349,540 13,250,689 ------------ ------------ Net Change in Cash and Cash Equivalents (5,085,281) 9,779,405 Cash and Cash Equivalents at Beginning of Period 15,794,175 6,866,009 ------------ ------------ Cash and Cash Equivalents at End of Period $ 10,708,894 $ 16,645,414 ============ ============ Supplemental Disclosure Of Cash Flow Information: Cash paid during the period for: Interest $ 3,122,391 $ 2,576,393 Taxes 260,000 150,259 Supplemental Disclosure Of Non-cash Flow Information: Change in unrealized (loss) gain on AFS securities ($ 217,892) $ 29,985 Change in deferred tax asset on unrealized loss on AFS securities 25,792 -- Transfer on loans to OREO 726,024 95,000 ============ ============
See accompanying notes to consolidated financial statements. DNB FINANCIAL CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: BASIS OF PRESENTATION AND RESTATEMENT The accompanying consolidated financial statements of DNB Financial Corporation (referred to herein as the "Company" or the "Registrant" or the "Corporation") and its subsidiary, Downingtown National Bank (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. The results of operations for the six months ended June 30, 1996 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, 1995. NOTE 2: INCOME TAXES The rate used for income taxes during the three and six months ended June 30, 1996 was less than the statutory rate and no income taxes were expensed during the three and six months ended June 30, 1995 because the Company recognized certain tax benefits relating primarily to the provisions for possible loan losses recorded in prior years. NOTE 3: NET INCOME PER SHARE Net income per share is computed based on the weighted average number of shares of common stock outstanding during the period. Earnings dilution caused by common stock equivalents does not exceed three percent (3%), therefore they are not included in the total weighted average. The weighted average number of shares of common stock outstanding was 658,793 for the three and six month periods ended June 30, 1996 and 1995. Per share net income, number of shares, and dividends have been adjusted for both five percent (5%) stock dividends paid during 1995. NOTE 4: RECENT ACCOUNTING PRONOUNCEMENTS .........In March 1995, the FASB issued SFAS No. 121, Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of ("SFAS No. 121"). This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and that any related impairment be based on the fair value of the asset. In addition, long-lived assets to be disposed of must generally be reported at the lower of carrying amount or fair value, less cost to sell. The effect of the implementation of SFAS No. 121 as of January 1, 1996 was immaterial to the Corporation's results of operations, financial condition and stockholders' equity. .........In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-based Compensation ("SFAS No. 123"). This statement encourages the adoption of fair value accounting for stock-based compensation issued to employees. Further, in the event that fair value accounting is not adopted, the statement requires proforma disclosure of net income and earnings per share as if fair value accounting had been adopted. SFAS No. 123 is required to be adopted by the Corporation in 1996. Management did not adopt fair value accounting for stock-based compensation issued to employees and, therefore, this statement had no effect on the Corporation's results of operations, financial condition and stockholders' equity. .........In June 1996, the FASB issued SFAS issued No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities ("SFAS No. 125"). This statement supersedes and amends certain existing standards by providing consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. Under SFAS 125, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. SFAS 125 is required to be effective for transactions occurring after December 31, 1996 and is to be applied prospectively. Management has not yet evaluated the impact this standard will have on the financial statements. DNB FINANCIAL CORPORATION AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Changes in Financial Condition The Company's total assets were $197.0 million at June 30, 1996 compared to $188.8 million at December 31, 1995. Total loans, net of unearned discount, were $116.0 million, down 1.6% from December 31, 1995. Investment securities (AFS and HTM) totaled $66.1 million, up $14.3 million or 27.6% from December. Federal funds sold were $1.3 million at June 30, 1996, down $6.3 million from December. The increase in investments was caused by the purchase of U. S. Treasury and Agency securities, funded by the decrease in Federal fund sold and net increase in deposits and borrowings. Deposits and other borrowings at June 30, 1996 totaled $180.7 million, compared to $173.2 million at December 31, 1995. Increases of $5.5 million and $2.2 million and $1.2 million in time, non-interest bearing and savings and money market (combined) deposits were partially offset by decreases of $1.3 million in repurchase agreements and $233,000 in NOW accounts. The increase in time deposits was the result of a limited certificate of deposit promotion initiated during the second quarter. At June 30, 1996, total stockholders' equity was $15.0 million or $22.80 per share, compared to $14.4 million or $21.79 per share at December 31, 1995. The increase in stockholders' equity was the result of net income of $1.1 million for the six months ended June 30, 1996, offset by dividends paid of approximately $165,000 or $.25 per share. Results of Operations Net Interest Income The Corporation's earnings performance is primarily dependent upon its level of net interest income, which is the excess of interest earned on loans, investments and Federal funds sold over interest expense on deposits and other borrowings. Net interest income increased $102,000 or 4.9% to $2.2 million for the three month period and $203,000 or 5.0% to $4.3 million for the six month period ended June 30, 1996. As shown in the first table, the increase in net interest income for the three month period ended June 30, 1996 was largely attributable to the positive effects of volume and, to a lesser degree, the positive effects of rate. The positive impact from volume of $85,000 was primarily attributable to higher levels of securities. The benefit from these higher levels was offset somewhat by a higher average volume of time deposits and repurchase agreements. There was a $16,000 net benefit from changes in rate. The primary contributing factors were improved yields on securities as well as lower yields on deposits and borrowings. For the six month period ended June 30, 1996, the $203,000 increase was attributable to both rate and volume ($113,000 and $90,000, respectively). The positive impact from rates was attributable to an improved yield on the securities portfolio as short term securities matured and were reinvested at higher yields. In addition, the yield on the loan portfolio increased due to a reduction in the level of non-performing loans. The increased interest income due to rates was partially offset by an $81,000 increase in time deposits expense attributable to rates. The positive impact from volume was attributable to higher volumes of securities ($9.0 million on average), and loans ($2.1 million on average), and Federal funds sold ($4.7 million on average) offset by an increase in the volume of time deposits ($13.0 million on average) and repurchase agreements ($5.2 million on average). The following tables sets forth, among other things, the extent to which changes in interest rates and changes in the average balances of interest-earning assets and interest-bearing liabilities have affected interest income and expense during the three and six months ended June 30, 1996 and 1995. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to (i) changes in rate (change in rate multiplied by old volume) and (ii) changes in volume (change in volume multiplied by old rate). The net change attributable to the combined impact of rate and volume has been allocated proportionately to the change due to rate and the change due to volume.
Three Months Ended June 30, 1996 Compared to 1995 Increase (Decrease) Due to (Dollars in Thousands) Rate Volume Total ------- ------ ------- Interest-earning assets: Loans $ (55) $ 20 $ (35) Securities 34 222 256 Federal funds sold (3) 41 38 ----- ----- ----- Total (24) 283 259 ----- ----- ----- Interest-bearing liabilities: Savings deposits (28) (22) (50) Time deposits (10) 163 153 Federal funds purchased -- -- -- Repurchase agreements (4) 58 54 ----- ----- ----- Total (42) 198 157 ----- ----- ----- Net Interest Income/interest rate spread $ 16 $ 85 $ 102 ===== ===== =====
Six Months Ended June 30, 1996 Compared to 1995 Increase (Decrease) Due to (Dollars in Thousands) Rate Volume Total ---------- ------ ------- Interest-earning assets: Loans $ 28 $ 94 $ 122 Securities 134 298 432 Federal funds sold (9) 130 121 ----- ----- ----- Total 153 522 675 ----- ----- ----- Interest-bearing liabilities: Savings deposits (40) (49) (89) Time deposits 81 357 438 Federal funds purchased -- (6) (6) Repurchase agreements (1) 130 129 ----- ----- ----- Total 40 432 472 ----- ----- ----- Net Interest Income/interest rate spread $ 113 $ 90 $ 203 ===== ===== =====
Provision for Possible Loan Losses In establishing its allowance for possible loan losses, management considers the size and risk exposure of each segment of the loan portfolio, past loss experience, present indicators such as delinquency rates and collateral values, and the potential for losses in future periods, and other relevant factors. In assessing this risk, management has taken into consideration various factors and variables which affect the portfolio, including economic trends, delinquency trends, underwriting standards, management expertise and concentrations of credit. In addition, the risk uncertainty contained in the unreviewed portion of the portfolio has also been considered. Management believes that it makes an informed judgment based upon available information. The adequacy of the allowance is ultimately dependent upon the economy, a factor beyond the Company's control. As such, there can be no assurance that material additions to the allowance will not be required in future periods. Determining the level of the allowance for possible loan losses at any given date is difficult, particularly in an uncertain economic environment. The Company's management must make estimates, using assumptions and information which are often subjective and rapidly changing. Management has continued its loan review program throughout the year. The Company made no provisions for possible loan losses during the three and six month periods ended June 30, 1996 and 1995. This lack of provisions was attributable to management's belief that there has been no significant further deterioration in the loan portfolio, based on available information. In addition, recoveries of prior charge-offs, as well as a further reduction in the Bank's level of non-performing and classified assets, eliminated the need for any provision. The following table summarizes the changes in the allowance for possible loan losses for the periods indicated. Real estate includes both residential and commercial real estate.
6 Months Year 6 Months Ended Ended Ended (Dollars in Thousands) 6/30/96 12/31/95 6/30/95 ------- ------- ------- Beginning Balance $ 5,515 $ 5,645 $ 5,645 Provisions -- -- -- Loans charged off: Real estate (274) (25) (10) Commercial (1) (124) (1) Installment (33) (164) (67) ------- ------- ------- Total charged off (308) (313) (78) Recoveries: Real estate 1 86 82 Commercial 14 24 14 Installment 24 73 37 ------- ------- ------- Total recoveries 39 183 133 ------- ------- ------- Net (Charge-offs) Recoveries (269) (130) 55 ------- ------- ------- Ending Balance $ 5,246 $ 5,515 $ 5,700 ======= ======= =======
Management believes that the Company has adequate reserves at June 30, 1996, however, it continues to monitor its loan portfolio and will make any adjustments as needed. In addition, loan classifications and loss reserves as determined by management of the Bank are subject to periodic examination by the OCC, the Federal Deposit Insurance Corporation and the Federal Reserve Bank. Management cannot predict with any degree of certainty whether a regulatory examination would require any changes in its loan classifications or adjustments to the allowance for possible loan losses. The Bank was examined by the OCC during the fourth quarter of 1995. The OCC's examination was as of September 30, 1995 for all matters. As a result of the examination, no additional provisions were required. Non-Interest Income Total non-interest income includes service charges on deposit products, trust commissions and fees received by the Corporation's Trust and Investment Services Division, and other less significant sources of income such as fees for safe deposit box rentals, issuing travelers' checks and money orders, collecting bills for local municipalities and similar activities. For the three month period ended June 30, 1996, non-interest income was $191,000, compared to $196,000 for the same three month period in 1995. Trust income was down $7,000, service charges were down $6,000 while other income was up $8,000 during the three month period ended June 30, 1996, compared to the same period in 1995. For the six month period ended June 30, 1996, non-interest income was $384,000, compared to $405,000 for the same period in 1995, down $21,000 or 5.2%. The decrease is largely attributable to a decline in Trust income of almost $19,000, a decrease in service charge income of $10,000, offset by a modest increase in other income of $7,000. Non-Interest Expense Non-interest expense includes salaries & employee benefits, occupancy, FDIC insurance, professional & consulting fees as well as printing & supplies, insurance, advertising and other less significant expense items. Management remains committed to controlling non-interest expenses by monitoring staffing levels and examining procedures and methods for cost savings within each functional area of the Bank. Non-interest expenses decreased $224,000 to $1.6 million and $315,000 to $3.4 million for the three and six month periods ended June 30, 1996, respectively, from $1.9 million and $3.7 million for the comparable periods in 1995. The decrease during both periods resulted primarily from lower level of FDIC insurance premiums, furniture & equipment, professional and consulting and insurance expense. Salaries & employee benefits decreased $11,000 or 1.2% to $933,000 for the three months ended June 30, 1996 compared to $944,000 for the same period in 1995. The decrease was caused by a reduction in the average number of full-time equivalent employees during these comparable periods. Salaries & employee benefits increased $63,000 or 3.4% to $1.9 million for the six months ended June 30, 1996 compared to $1.8 million for the same period in 1995. The increase in this category has been caused by normal salary merit increases and increases in other benefit/incentive plans offered by the Corporation. Furniture & equipment expense decreased approximately $51,000 or 24.8% to $155,000 and $97,000 or 23.0% to $325,000 for the three and six months ended June 30, 1996, compared to the same periods in 1995. During the first quarter of 1995, the Company operated and incurred costs for two MIS systems during a computer conversion. There was no duplication of expenditures in this area in 1996. FDIC insurance decreased $94,000 or 88.7% to $12,000 and $188,000 or 88.8% to $24,000 for the three and six months ended June 30, 1996 compared to the same periods in 1995. The reduction in FDIC insurance premium was the result of lower insurance rates due to the recapitalization by the Bank Insurance Fund ("BIF") as it reached its required level of 1.25% of BIF insured deposits. Professional & consulting expense decreased approximately $58,000 or 44.4% to $73,000 and $54,000 or 25.9% to $154,000 for the three and six months ended June 30, 1996 compared to the same periods in 1995. Professional & consulting expense in 1995 included professional and legal services associated with DNB Financial Corporation's Stock Option Plan as well as for costs associated with strategic planning. There were no such expenses in 1996. Insurance expense, which includes the Corporation's fidelity bond, commercial package, workers compensation and directors & officers liability, decreased $17,000 or 34.7% to $32,000 and $36,000 or 35.7% to $64,000 for the three and six months ended June 30, 1996 compared to 1995. Insurance expense continues to decrease as the Bank recognizes the full benefit from lower premium quotes obtained on the above policies during 1995 and the beginning of 1996. Advertising & marketing expense decreased $4,000 or 5.8% to $64,000 and $19,000 or 15.0% to $106,000 for the three and six months ended June 30, 1996 compared to 1995. Advertising & marketing expense in 1995 included additional costs associated with several limited deposit promotions initiated in the first and second quarter. These decreases were offset slightly by a modest increase in "other expenses". Other expenses include such items as OREO expense, satisfaction fees, appraisal fees, telephone & fax expense and other miscellaneous expenses. Other expenses increased $21,000 or 15.4% to $155,000 and $14,000 or 4.7% to $313,000 for the three and six months ended June 30, 1996 compared to 1995. The increase in this category was caused by additional costs incurred to manage and supervise the Bank's OREO properties. Income Taxes Income tax expense was $140,000 and $243,000 for the three and six months ended June 30, 1996. No income taxes were expensed during the first six months of 1995. The rates used for income taxes for both periods were less than the statutory rate as the Corporation recognized certain tax benefits relating to the provisions for possible loan losses recorded in prior years. Asset Quality Non-performing assets are comprised of nonaccrual loans, loans delinquent over ninety days and still accruing and Other Real Estate Owned ("OREO"). Nonaccrual loans are loans for which the accrual of interest ceases when the collection of principal or interest payments is determined to be doubtful by management. It is the policy of the Company to discontinue the accrual of interest when principal or interest payments are delinquent 90 days or more (unless the loan principal and interest are determined by management to be fully secured and in the process of collection), or earlier, if considered prudent. Interest received on such loans is applied to the principal balance, or may in some instances, be recognized as income on a cash basis. OREO consists of real estate acquired by foreclosure or deed in lieu of foreclosure. OREO is carried at the lower of cost or estimated fair value, less estimated disposition costs. Any significant change in the level of nonperforming assets is dependent to a large extent on the economic climate within the Company's markets, the financial condition of the Bank's borrowers and to the efforts of management to reduce the level of such assets. The following table sets forth those assets that are: (i) on nonaccrual status, (ii) contractually delinquent by 90 days or more and still accruing (iii) other real estate owned as a result of foreclosure or voluntary transfer to the Company.
June 30 Dec. 31 June 30 (Dollars in Thousands) 1996 1995 1995 ---- ---- ---- Nonaccrual Loans Residential mortgage $ 849 $1,355 $1,604 Commercial mortgage 1,150 1,832 1,963 Commercial 845 722 1,249 Personal 196 237 304 ------ ------ ------ Total nonaccrual loans 3,040 4,146 5,120 Loans 90 days past due and still accruing: Installment/Student 324 129 66 Total non-performing loans 3,364 4,275 5,186 Other real estate owned 1,536 810 423 ------ ------ ------ Total non-performing assets $4,900 $5,085 $5,609 ====== ====== ======
If interest income had been recorded on nonaccrual loans and trouble debt restructurings, interest would have been increased as shown in the following table:
6 Months Year 6 Months Ended Ended Ended (Dollars in thousands) 6/30/96 12/31/95 6/30/95 ------- ------ ------- Interest income which would have been recorded under original terms $ 127 $ 353 $ 220 Interest income recorded during the period (28) (222) (33) ----- ----- ----- Net impact on interest income $ 99 $ 131 $ 187 ===== ===== =====
As of June 30, 1996, the Corporation had impaired loans with a total recorded investment of $1.3 million and an average recorded investment for the six month period ended June 30, 1996 of $1.6 million. As of June 30, 1996, the amount of recorded investment in impaired loans for which there is a related allowance for credit losses and the amount of the allowance is $191,000 and $107,000, respectively. The amount of the recorded investment in impaired loans for which there was no related allowance for credit losses at June 30, 1996 is $1.2 million. Total cash collected on impaired loans was credited to the outstanding principal balance in the amount of $50,000 during the six months ended June 30, 1996. No interest income was recorded on such loans. The following table sets forth the Company's asset quality and allowance coverage ratios at the dates indicated:
June 30 Dec. 31 June 30 1996 1995 1995 ---- ---- ---- Non-performing Loans/Total Loans 2.90% 3.63% 4.42% Non-performing Assets/Total Loans and OREO 4.17 4.29 4.76 Allowance for Loan & Lease Losses/Total Loans 4.52 4.68 4.86 Allowance for Loan & Lease Losses/Total Loans and OREO 4.46 4.65 4.84 Allowance for Loan & Lease Losses/Non-performing Assets 107.06 108.46 101.62 Allowance for Loan & Lease Losses/Non-performing Loans 155.95 129.01 109.91
Liquidity and Capital Resources For a financial institution, liquidity is a measure of the ability to fund customers' needs for loans and deposit withdrawals. Management regularly evaluates economic conditions in order to maintain a strong liquidity position. One of the most significant factors considered by management when evaluating liquidity requirements is the stability of the Company's core deposit base. In addition to cash, the Company maintains a portfolio of short term investments to meet its liquidity requirements. The Company has historically relied on cash flow from operations and other financing activities. Liquidity is provided by investing activities, including the repayment and maturing of loans and investment securities. At June 30, 1996 the Company has $1.4 million in commitments to fund commercial real estate, construction and land development. In addition, the Company had commitments to fund $0.6 million in home equity lines of credit and $10.3 million in other unused commitments. Management anticipates the majority of these commitments will be funded by means of normal cash flows. In addition, $37.2 million of certificates of deposit at the Company are scheduled to mature during the six months ending December 31, 1996. Management believes that the majority of such deposits will be reinvested with the Company and that certificates that are not renewed will be funded by maturing loans and investments. Stockholders' equity increased to $15.0 million at June 30, 1996 as a result of the $1,051,000 profit reported for the six months then ended and after dividends paid totaling approximately $165,000 year to date. In addition, the Federal Reserve Board requires bank holding companies to maintain similar capital levels. Management believes that the Bank is adequately capitalized and as a result of the Bank's common equity position, the Bank's risk-based capital ratios exceed the 1996 regulatory required minimums. The following table summarizes data and ratios pertaining to the Bank's capital structure.
(Dollars in Thousands) June 30, 1996 ------------ Tier I Capital: Common stock $ 6,588 Surplus 4,295 Retained earnings 4,296 ------- Total 15,179 Tier II Capital 1,604 ------- Total Capital $16,783 =======
Required Current Excess ------ ------ ------ Leverage 5.00% 7.70% 2.70% Tier I 4.00 12.17 8.17 Risk-based 8.00 13.46 5.46
Regulatory Matters On February 1, 1996, the OCC informed the Bank that it had achieved substantial compliance with the Bank's voluntary 1992 Consent Order (the "Consent Order"), and that the Consent Order was terminated. Likewise, on February 12, 1996, the Federal Reserve Bank ("FRB") terminated the 1993 Memorandum of Understanding which had been entered into between the Corporation and the FRB. The Bank was examined by the OCC during the fourth quarter of 1995. The Bank was not required to make additional provisions to its allowance for possible loan losses or charge-offs as a result of this examination. Dividends payable to the Corporation by the Bank are subject to certain regulatory limitations. Under normal circumstances, the payment of dividends in any year without regulatory permission is limited to the net profits (as defined for regulatory purposes) for that year plus the retained net profits for the preceding two calendar years. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable ITEM 2. CHANGES IN SECURITIES Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable ITEM 5. OTHER INFORMATION Not Applicable ITEM 6. (a) EXHIBITS: Not Applicable (b) REPORTS ON FORM 8-K Not Applicable SIGNATURES Pursuant to the requirements of The Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DNB FINANCIAL CORPORATION (Registrant) /S/ Henry F. Thorne DATE: August 14, 1996 ________________________________ Henry F. Thorne, President and Chief Executive Officer /S/ Bruce E. Moroney DATE: August 14, 1996 _________________________________ Bruce E. Moroney Chief Financial Officer SIGNATURES Pursuant to the requirements of The Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DNB FINANCIAL CORPORATION (Registrant) DATE: August 14, 1996 /S/ Henry F. Thorne ------------------- Henry F. Thorne, President and Chief Executive Officer DATE: August 14, 1996 /S/ Bruce E. Moroney -------------------- Chief Financial Officer EX-27 2
9 6-MOS DEC-31-1996 JUN-30-1996 9,415,894 2,230,519 1,293,000 0 16,507,896 49,569,088 48,726,802 115,958,821 5,245,700 197,028,396 173,780,977 6,960,897 1,263,811 0 0 0 6,587,930 8,590,755 197,028,396 5,270,518 1,905,942 218,043 7,394,503 2,945,456 3,135,206 4,259,297 0 0 3,350,253 1,293,341 1,050,341 0 0 1,050,341 1.59 1.59 8.13 3,039,563 324,531 0 6,674,000 5,514,600 307,581 38,681 5,245,700 5,245,700 0 0
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