-----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, BjffKvHNpvE50G6R/b909dbCuNKS2Z6CN7RrKi1P/qzSXgYhb1LhLN/v/Av4YVvY MotZzph4suiDLr+CVZ7CCw== /in/edgar/work/20000814/0000713671-00-000005/0000713671-00-000005.txt : 20000921 0000713671-00-000005.hdr.sgml : 20000921 ACCESSION NUMBER: 0000713671-00-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DNB FINANCIAL CORP /PA/ CENTRAL INDEX KEY: 0000713671 STANDARD INDUSTRIAL CLASSIFICATION: [6022 ] IRS NUMBER: 232222567 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16667 FILM NUMBER: 698339 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 0001.txt 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, 2000 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 ($1.00 Par Value) 1,611,339 (Class) (Shares Outstanding as of August 14, 2000) - --------------------------------------------------------------------------- DNB FINANCIAL CORPORATION AND SUBSIDIARY INDEX PART I - FINANCIAL INFORMATION PAGE NO. ITEM 1. FINANCIAL STATEMENTS (Unaudited): CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION June 30, 2000 and December 31, 1999 3 CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended June 30, 2000 and 1999 4 CONSOLIDATED STATEMENTS OF OPERATIONS Six Months Ended June 30, 2000 and 1999 5 CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, 2000 and 1999 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and December 31, 1999 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 17 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 18 ITEM 2. CHANGE IN SECURITIES 18 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 18 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18 ITEM 5. OTHER INFORMATION 18 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18 SIGNATURES 19
- ----------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (Dollars in thousands, except per share amounts) - ----------------------------------------------------------------------------------------------------------------- June 30, December 31, 2000 1999 --------- --------- .................................................................................. ASSETS Cash and due from banks .............................................................. $ 12,917 $ 11,226 Federal funds sold ................................................................... 7,516 6,304 --------- --------- Total cash and cash equivalents ...................................................... 20,433 17,530 --------- --------- Investment securities available for sale, at market value ............................ 76,485 62,988 Investment securities (market value $46,169 in 2000 and $39,869 in 1999) ...................................................... 47,199 40,683 Loans, net of unearned income ........................................................ 176,752 171,456 Allowance for loan losses ............................................................ (4,958) (5,085) --------- --------- Net loans ............................................................................ 171,794 166,371 --------- --------- Office property and equipment, net ................................................... 5,654 5,776 Accrued interest receivable .......................................................... 2,144 1,804 Other real estate owned .............................................................. 183 83 Deferred income taxes ................................................................ 1,926 2,002 Other assets ......................................................................... 4,360 4,112 --------- --------- Total assets ......................................................................... $ 330,178 $ 301,349 ========= ========= Liabilities and Stockholders' Equity Liabilities Non-interest-bearing deposits ........................................................ $ 38,026 $ 31,864 Interest-bearing deposits: NOW accounts ...................................................................... 41,792 39,501 Money market ...................................................................... 50,850 47,517 Savings ........................................................................... 30,663 30,199 Time .............................................................................. 112,250 105,800 --------- --------- Total deposits ....................................................................... 273,581 254,881 --------- --------- Federal Funds purchased .............................................................. 3,977 -- FHLB Advances ........................................................................ 27,744 23,746 Accrued interest payable ............................................................. 1,017 1,078 Other liabilities .................................................................... 2,238 1,106 --------- --------- Total liabilities .................................................................... 308,557 280,811 --------- --------- Stockholders' Equity Preferred stock, $10.00 par value; 1,000,000 shares authorized; none issued .......................................... -- -- Common stock, $1.00 par value; 10,000,000 shares authorized; 1,611,339 and 1,609,463 issued and outstanding, respectively .................................... 1,611 1,609 Surplus .............................................................................. 18,570 18,555 Retained earnings .................................................................... 3,328 2,429 Accumulated other comprehensive loss ................................................. (1,888) (2,055) --------- --------- Total stockholders' equity ........................................................... 21,621 20,538 --------- --------- Total liabilities and stockholders' equity ........................................... $ 330,178 $ 301,349 ========= =========
See accompanying notes to consolidated financial statements.
- ----------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Dollars in thousands, except per share amounts) - ----------------------------------------------------------------------------------------------------------------------------------- Three Months Ended June 30 -------------------------- 2000 1999 ---- ---- INTEREST INCOME: Interest and fees on loans ............................................................................. $ 3,650 $ 3,525 Interest on taxable investment securities .............................................................. 1,865 1,434 Interest on tax-free investment securities ............................................................. 140 114 Interest on Federal funds sold ......................................................................... 43 57 ---------- ---------- Total interest income .................................................................................. 5,698 5,130 ---------- ---------- INTEREST EXPENSE: Interest on time deposits .............................................................................. 1,549 1,310 Interest on NOW, money market and savings .............................................................. 1,004 809 Interest on Federal funds purchased .................................................................... 5 -- Interest on FHLB advance ............................................................................... 382 231 Interest on lease obligations .......................................................................... 25 -- ---------- ---------- Total interest expense ................................................................................. 2,965 2,350 ---------- ---------- NET INTEREST INCOME .................................................................................... 2,733 2,780 PROVISION FOR LOAN LOSSES .............................................................................. -- -- ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES .................................................... 2,733 2,780 ---------- ---------- NON-INTEREST INCOME: Service charges ........................................................................................ 190 159 Trust income ........................................................................................... 111 137 Other .................................................................................................. 118 95 ---------- ---------- Total non-interest income .............................................................................. 419 391 ---------- ---------- NON-INTEREST EXPENSE: Salaries and employee benefits ......................................................................... 1,185 1,076 Furniture and equipment ................................................................................ 261 222 Occupancy .............................................................................................. 148 166 Advertising and marketing .............................................................................. 89 134 Professional and consulting ............................................................................ 99 102 Printing and supplies .................................................................................. 69 71 Other .................................................................................................. 381 301 ---------- ---------- Total non-interest expense ............................................................................. 2,232 2,072 ---------- ---------- INCOME BEFORE INCOME TAXES ............................................................................. 919 1,099 INCOME TAX EXPENSE ..................................................................................... 285 352 ---------- ---------- NET INCOME ............................................................................................. $ 634 $ 747 ========== ========== COMMON SHARE DATA: EARNINGS PER SHARE: Basic ............................................................................................... $ 0.39 $ 0.47 Diluted ............................................................................................. 0.39 0.45 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic ............................................................................................... 1,611,339 1,600,543 Diluted ............................................................................................. 1,624,295 1,644,081 CASH DIVIDENDS PER SHARE ............................................................................... $ 0.13 $ 0.12
See accompanying notes to consolidated financial statements
- ----------------------------------------------------------------------------------------------------------------------------------- Consolidated Statements of Operations (Unaudited) (Dollars in thousands, except per share amounts) - ----------------------------------------------------------------------------------------------------------------------------------- Six Months Ended June 30 ------------------------ 2000 1999 ---------- ---------- .................................................................................................... INTEREST INCOME: Interest and fees on loans ............................................................................. $ 7,215 $ 6,650 Interest on taxable investment securities .............................................................. 3,574 2,858 Interest on tax-free investment securities ............................................................. 254 218 Interest on Federal funds sold ......................................................................... 110 101 ---------- ---------- Total interest income .................................................................................. 11,153 9,827 ---------- ---------- INTEREST EXPENSE: Interest on time deposits .............................................................................. 3,024 2,609 Interest on NOW, money market and savings .............................................................. 1,931 1,501 Interest on Federal funds purchased .................................................................... 6 -- Interest on FHLB advances .............................................................................. 675 459 Interest on lease obligations .......................................................................... 51 -- ---------- ---------- Total interest expense ................................................................................. 5,687 4,569 ---------- ---------- NET INTEREST INCOME .................................................................................... 5,466 5,258 PROVISION FOR LOAN LOSSES .............................................................................. -- -- ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES..................................................... 5,466 5,258 ---------- ---------- NON-INTEREST INCOME: Service charges ........................................................................................ 356 288 Trust income ........................................................................................... 234 220 Other .................................................................................................. 222 250 ---------- ---------- Total non-interest income .............................................................................. 812 758 ---------- ---------- NON-INTEREST EXPENSE: Salaries and employee benefits ......................................................................... 2,346 2,099 Furniture and equipment ................................................................................ 520 438 Occupancy .............................................................................................. 298 285 Advertising and marketing .............................................................................. 173 223 Professional and consulting ............................................................................ 212 197 Printing and supplies .................................................................................. 130 135 Other .................................................................................................. 703 621 ---------- ---------- Total non-interest expense ............................................................................. 4,382 3,998 ---------- ---------- INCOME BEFORE INCOME TAXES ............................................................................. 1,896 2,017 INCOME TAX EXPENSE ..................................................................................... 578 643 ---------- ---------- NET INCOME ............................................................................................. $1,318 $1,374 ========== ========== COMMON SHARE DATA: EARNINGS PER SHARE: Basic .............................................................................................. $0.82 $0.86 Diluted ............................................................................................. 0.81 0.84 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic ............................................................................................... 1,611,339 1,600,543 Diluted ............................................................................................. 1,626,025 1,644,204 CASH DIVIDENDS PER SHARE ............................................................................... $ 0.26 $ 0.25
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands) - --------------------------------------------------------------------------------------------------------------------------------- Six Months Ended June 30 ------------------------ 2000 1999 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income .............................................................................................. $ 1,318 $ 1,374 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ........................................................................... 354 380 Gain on sale of OREO .................................................................................... -- (46) Increase in accrued interest receivable ................................................................. (340) (123) Increase in other assets ................................................................................ (249) (701) Decrease in accrued interest payable .................................................................... (60) (56) Decrease in current taxes payable ....................................................................... (982) (8) Increase in other liabilities ........................................................................... 2,115 845 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES ............................................................... 2,156 1,665 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities & paydowns of AFS securities ................................................... 3,044 1,977 Proceeds from maturities & paydowns of HTM securities ................................................... 4,007 3,200 Purchase of AFS securities .............................................................................. (16,274) (8,579) Purchase of HTM securities .............................................................................. (10,542) (4,078) Net increase in loans ................................................................................... (5,522) (17,596) Proceeds from sale of OREO .............................................................................. -- 101 Purchase of office property and equipment ............................................................... (237) (552) -------- -------- NET CASH USED BY INVESTING ACTIVITIES ................................................................... (25,524) (25,527) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits ................................................................................ 18,699 22,381 Increase in Federal funds purchased ..................................................................... 3,977 -- Decrease in lease obligations ........................................................................... (3) -- Increase in FHLB advances ............................................................................... 4,000 -- Proceeds from issuance of options ....................................................................... 17 -- Dividends paid .......................................................................................... (419) (396) -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES ............................................................... 26,271 21,985 -------- -------- NET CHANGE IN CASH AND CASH EQUIVALENTS ................................................................. 2,903 (1,877) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........................................................ 17,530 19,831 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD .............................................................. $ 20,433 $ 17,954 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest ................................................................................................ $ 5,747 $ 4,626 Taxes ................................................................................................... 560 650 Supplemental Disclosure Of Non-Cash Flow Information: Transfer of loans to OREO ............................................................................... $ 99 $ 472 ======== ========
See accompanying notes to consolidated financial statements. DNB FINANCIAL CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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, 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. Prior period amounts not affecting net income are reclassified when necessary to conform with current period classifications. The results of operations for the six months ended June 30, 2000 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, 1999. NOTE 2: EARNINGS PER SHARE (EPS) Basic earnings per share is computed based on the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect the potential dilution that could occur from the conversion of common stock equivalents (i.e., stock options) and is computed using the treasury stock method. For the three and six months ended June 30, 2000, 151,300 and 153,030 stock options were not included because such options were antidilutive. These shares may be dilutive in the future. Earnings per share, dividends per share and weighted average shares outstanding have been adjusted to reflect the effects of the 5% stock dividend paid in December 1999. Net income and the weighted average number of shares outstanding for basic and diluted EPS for the three and six months ended June 30, 2000 and 1999 are reconciled as follows:
(In thousands, except per share amounts) Three months ended Three months ended June 30, 2000 June 30, 1999 ------------------ ------------------ Income Shares Amount Income Shares Amount Basic EPS: Income available to common stockholders ...................... $634 1,611 $ 0.39 $747 1,601 $ 0.47 Effect of dilutive common stock equivalents- stock options ........................................... -- 13 -- 43 0.02 ---- ----- ----- ---- ----- ------ Diluted EPS .................................................. $634 1,624 $ 0.39 $747 1,644 $ 0.45 ==== ===== ===== ==== ===== ======
Six months ended Six months ended June 30, 2000 June 30, 1999 --------------------------- ---------------------- Income Shares Amount Income Shares Amount ------ ------ ------ ------ ------ ------ Basic EPS: Income available to common stockholders .... $1,318 1,611 $0.81 $1,374 1,601 $0.86 Effect of dilutive common stock equivalents- stock options ........................ -- 15 -- -- 43 0.02 ------ ----- ----- ------ ----- ----- Diluted EPS ................................ $1,318 1,626 $0.81 $1,374 1,644 $0.84 ====== ===== ===== ====== ===== =====
NOTE 3: COMPREHENSIVE INCOME Comprehensive income includes all changes in stockholders' equity during the period, except those resulting from investments by owners and distributions to owners. Comprehensive income for all periods consisted of net income and other comprehensive (loss) income relating to the change in unrealized (losses) gains on investment securities available for sale, as shown in the following table:
(Dollars in thousands) For three months ended June 30 For six months ended June 30 ------------------------------ ---------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- COMPREHENSIVE INCOME: Net Income $634 $ 747 $1,318 $1,374 Other comprehensive (loss) income, net of tax, relating to unrealized (losses) gains on investments (198) (593) 167 (955) ----- ----- ------ ------ Total comprehensive income $436 $ 154 $1,485 $ 419 ===== ===== ====== ======
NOTE 4: RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133") which was subsequently amended. This statement standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and those used for hedging activities, by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. SFAS No. 133 generally provides for matching of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk, so long as the hedge is effective. Prospective application of SFAS No. 133 is required for all fiscal years beginning after June 15, 2000, however earlier application is permitted. DNB has not yet determined the impact, if any, of this statement, including its provisions for the potential reclassifications of investment securities, on operations, financial condition and equity and comprehensive income. However, DNB currently has no derivatives covered by this statement and currently conducts no hedging activities. DNB FINANCIAL CORPORATION AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CHANGES IN FINANCIAL CONDITION DNB's total assets were $330.2 million at June 30, 2000 compared to $301.3 million at December 31, 1999. Investment securities (AFS and HTM) increased $20.0 million or 19% to $123.7 million at June 30, 2000. There were significant increases in U. S. Agency securities which grew by $14.4 million or 13.9%. Total loans were $171.8 million, up $5.4 million or 3% from $166.4 million at December 31, 1999. Federal funds sold were $7.5 million at June 30, 2000, up $1.2 million from December 31, 1999. The increase in assets was funded by an $18.7 million and a $7.8 million increase in deposits and borrowings, respectively. Deposits and other borrowings at June 30, 2000 totaled $305.3 million, compared to $278.6 million at December 31, 1999, an increase of $26.6 million, resulting from several successful deposit promotions. Since December 31, 1999, there have been increases of $6.4 million in time deposits, $6.1 million in non-interest bearing accounts, $3.3 million in Money Market accounts and $2.3 million in NOW accounts. Borrowings were $27.0 million at June 30, 2000, up $4 million from December 31, 1999. At June 30, 2000, stockholders' equity was $21.6 million or $13.42 per share, compared to $20.5 million or $12.76 per share at December 31, 1999. The increase in stockholders' equity was the result of net income of $1.3 million for the six months ended June 30, 2000, offset by dividends paid of approximately $419,000 or $.26 per share and a $167,000 change in the fair market value of available-for-sale securities, net of taxes. RESULTS OF OPERATIONS NET INTEREST INCOME DNB's earnings performance is primarily dependent upon its level of net interest income, which is the excess of interest revenue over interest expense. Interest revenue includes interest earned on loans, investments and Federal funds sold and interest-earning cash, as well as loan fees and dividend income. Interest expense includes interest cost for deposits, Federal funds purchased, Federal Home Loan Bank advances and other borrowings. On a tax-equivalent basis, net interest income decreased $42,000 or 1.5% to $2.8 million for the three month period and increased $224,000 or 4% to $5.6 million for the six month period ended June 30, 2000 compared to the three and six month periods ending June 30, 1999. As shown in the following tables, the decrease in net interest income for the three month period ended June 30, 2000 compared to the three month period ending June 30, 1999 was largely attributable to the negative effects of rate change, partially offset by the positive effects of volume changes. The increase in net interest income for the six month period ending June 30, 2000 compared to the six month period ending June 30, 1999 was largely attributable to the positive effects of volume changes, partially offset by the negative effects of rate changes. The positive impact from volume changes was attributable to significant increases in average interest-earning assets of $31.3 million and $32.3 million during the three and six month periods, respectively. The negative impact from changes in rates for both periods was primarily attributable to an increase in DNB's composite cost of funds, reflecting the current interest rate environment, as well as the competitive market for deposits. 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, 2000 compared to the same periods in 1999 (tax-exempt yields have been adjusted to a tax equivalent basis using a 34% tax rate). 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, 2000 Compared to 1999 -------------------------------- Increase (Decrease) Due to -------------------------------- Rate Volume Total ---- ------ ----- Interest-earning assets: Loans ......................................... $(133) $ 258 $ 125 Investment securities-taxable ................. 186 245 431 Investment securities-tax exempt .............. 3 29 32 Federal funds sold ............................ 15 (30) (15) ----- ----- ----- Total .................................... 71 502 573 ----- ----- ----- Interest-bearing liabilities: Savings, NOW and money market deposits ........ 115 80 195 Time deposits ................................. -- 5 5 FHLB advances ................................. 43 108 151 Lease obligations ............................. -- 25 25 ----- ----- ----- Total .................................... 248 367 615 ----- ----- ----- Net Interest Income ........................... $(177) $ 135 $ (42) ===== ===== =====
Six Months Ended June 30, 2000 Compared to 1999 ------------------------------ Increase (Decrease) Due to ------------------------------ Rate Volume Total ------- ------- ------- Interest-earning assets: Loans ............................................................... $ (140) $ 705 $ 565 Investment securities-taxable ....................................... 157 559 716 Investment securities-tax exempt .................................... 9 43 52 Federal funds sold .................................................. 28 (19) 9 ------- ------- ------- Total .......................................................... 54 1,288 1,342 ------- ------- ------- Interest-bearing liabilities: Savings, NOW and money market deposits .............................. 110 320 430 Time deposits ....................................................... 118 297 415 Federal funds purchased ............................................. -- 6 6 FHLB advances ....................................................... 68 148 216 Lease obligations ................................................... -- 51 51 ------- ------- ------- Total .......................................................... 296 822 1,118 ------- ------- ------- Net Interest Income ................................................. $ (242) $ 466 $ 224 ======= ======= =======
PROVISION FOR LOAN LOSSES To provide for inherent losses in the loan portfolio, DNB maintains an allowance for loan losses. To maintain an adequate allowance, management charges the provision for loan losses against income. Loan losses are charged directly against the allowance and recoveries on previously charged-off loans are added to the allowance. In establishing its allowance for loan losses, management considers the size and risk exposure of each segment of the loan portfolio, past loss experience, present indicators of risk such as delinquency rates, levels of nonaccruals, the potential for losses in future periods, and other relevant factors. Management's evaluation of the loan portfolio generally includes reviews, on a sample basis, of individual borrowers regardless of size and reviews of problem borrowers of $100,000 or greater. Consideration is also given to examinations performed by regulatory agencies, primarily the Office of the Comptroller of the Currency ("OCC"). The provisions are based on management's review of the economy, interest rates, general market conditions, estimates of the fair value of collateral, financial strength and ability of the borrowers and guarantors to pay, and considerations regarding the current and anticipated operating or sales environment. These estimates are particularly susceptible to change and may result in a material adjustment to the allowance. While management uses the latest information available to make its evaluation of the adequacy of the allowance, future adjustments may be necessary if conditions differ substantially from the assumptions used in making the evaluations. There were no provisions made during the six months ended June 30, 2000, since management determined the allowance for loan losses was adequate based on its analysis and the level of net charge-offs/recoveries compared to the total allowance. Net loan charge-offs were $127,000 for the six months ended June 30, 2000, compared to $120,000 for the year ended December 31, 1999 and $28,000 for the six months ended June 30, 1999. The percentage of net (charge-offs)/recoveries to total average loans was (.07%), (.07%) and .01% for the same respective periods. Another measure of the adequacy of the allowance is the coverage ratio of the allowance to non-performing loans, which was 274% at June 30, 2000. DNB'S coverage ratio is high relative to peers. However, its level of delinquencies and non-performing assets, although down significantly in the last few years, still remains well above peer averages. In addition, the ratio of non-performing loans to total loans has steadily declined and was 1.02% at June 30, 2000. The following table summarizes the changes in the allowance for loan losses for the periods indicated. Real estate includes both residential and commercial real estate.
6 Months Year 6 Months Ended Ended Ended 6/30/00 12/31/99 6/30/99 ------- -------- ------- .................................................................. Beginning balance .................................................... $ 5,085 $ 5,205 $ 5,205 Provisions ........................................................... -- -- -- Loans charged off: Real estate ................................................... (105) (171) -- Commercial .................................................... (25) -- (11) Consumer ...................................................... (25) (45) -- ------- ------- ------- Total charged off ......................................... (155) (216) (11) Recoveries: Real estate ................................................... 3 21 -- Commercial .................................................... 13 15 35 Consumer ...................................................... 12 60 4 ------- ------- ------- Total recoveries .......................................... 28 96 39 ------- ------- ------- Net recoveries (charge-offs) ......................................... (127) (120) 28 ------- ------- ------- Ending balance ....................................................... $ 4,958 $ 5,085 $ 5,233 ======= ======= =======
NON-INTEREST INCOME Total non-interest income includes service charges on deposit products; fees received by DNB's Investment Services & Trust Division; and other sources of income such as net gains on sales of investment securities and other real estate owned ("OREO") properties, fees for cash management services, safe deposit box rentals, lockbox services and similar activities. For the three and six month periods ended June 30, 2000, non-interest income was $419,000 and $812,000, respectively, compared to $391,000 and $758,000 for the same periods in 1999. Service charges increased $31,000 and $68,000, to $190,000 and $356,000 for the three and six month periods ended June 30, 2000. Much of the increase in this category come from non-sufficient funds ("NSF") fees, which rose $19,000 and $36,000, respectively, due to an increase in the volume of accounts as well as a concerted effort by management to reduce the waived fee percentage on deposit account overdrafts. In addition, cycle charges rose $8,000 and $16,000 for the three and six month periods. Other non-interest income increased $23,000 and decreased $28,000 to $118,000 and $222,000 for the three and six month periods ended June 30, 2000, respectively. The increase in other income for the three month period reflected additional debit card commissions and cash management fees. The decrease during the six month period reflects gains on OREO sales during the first quarter of 1999, while there were no such gains in 2000. NON-INTEREST EXPENSE Non-interest expense includes salaries & employee benefits, furniture & equipment, occupancy, professional & consulting fees as well as printing & supplies, advertising and other less significant expense items. Non-interest expenses increased $160,000 to $2.2 million and $384,000 to $4.4 million for the three and six month periods ended June 30, 2000 compared to the three and six month periods ended June 30, 1999. The increase during these periods resulted primarily from higher levels of salaries & employee benefits and furniture & equipment expense. Salaries & employee benefits increased $109,000 to $1.2 million and $247,000 to $2.3 million for the three and six months ended June 30, 2000, compared to $1.1 million and $2.1 million for the same periods in 1999. The increase in this category reflects the increase in full-time equivalent employees and the staffing of the two new full service branches opened in 1999. Furniture & equipment expense increased $39,000 or 18% to $261,000 and $82,000 or 19% to $520,000 for the three and six months ended June 30, 2000, respectively, compared to $222,000 and $438,000 for the same periods in 1999. The increases for both periods were due to higher levels of depreciation and maintenance on new computer equipment and software. Occupancy expense decreased approximately $18,000 or 11% to $148,000 and increased $14,000 or 5% to $299,000 for the three and six months ended June 30, 2000, respectively. This compares to $166,000 and $285,000 for the same periods in 1999. The decrease for the three month period reflects a reclass for the West Goshen lease, offset by higher repairs and maintenance expense. The increase for the six month period in this category reflects the added costs incurred for the two new offices as well as higher costs for repairs and maintenance of all facilities. Advertising & marketing expense decreased $44,000 and $50,000 to $90,000 and $173,000 for the three and six months ended June 30, 2000, respectively, compared to $134,000 and $223,000 for the same periods in 1999. Expenditures have decreased mainly due to the opening and promotion of two new branches in 1999. INCOME TAXES Income tax expense was $285,000 and $578,000 for the three and six months ended June 30, 2000 compared to $352,000 and $643,000 for the same periods in 1999. The effective tax rate was 31% for the three month period and 30% for the six month period ending June 30, 2000 compared to 32% for the three and six month periods ending June 30, 1999. The rates used for income taxes for both periods were less than the statutory rate as a result of tax exempt interest income. 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 DNB 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. A nonaccrual loan may be restored to accrual status when management expects to collect all contractual principal and interest due and the borrower has demonstrated a sustained period of repayment performance in accordance with the contractual terms. 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 DNB's markets 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) loans restructured in a troubled debt restructuring and (iv) other real estate owned as a result of foreclosure or voluntary transfer to DNB.
(Dollars in thousands) June 30 Dec. 31 June 30 2000 1999 1999 ------ ------ ------ Nonaccrual Loans: Residential mortgage ............... $ 132 $ -- $ 106 Commercial mortgage ................ 125 361 689 Commercial ......................... 562 674 781 Consumer ........................... 327 292 124 ------ ------ ------ Total nonaccrual loans .................. 1,146 1,327 1,700 Loans 90 days past due and still accruing 626 694 703 Troubled debt restructurings ............ 40 -- -- ------ ------ ------ Total non-performing loans .............. 1,812 2,021 2,403 Other real estate owned ................. 183 83 555 ------ ------ ------ Total non-performing assets ............. $1,995 $2,104 $2,958 ====== ====== ======
The following table sets forth the DNB's asset quality and allowance coverage ratios at the dates indicated:
June 30 Dec. 31 June 30 2000 1999 1999 ---- ---- ---- Non-performing Loans/Total Loans .............. 1.0% 1.2% 1.4% Non-performing Assets/Total Loans and OREO .... 1.1 1.2 1.8 Allowance for Loan Losses/Total Loans ......... 2.8 3.0 3.2 Allowance for Loan Losses/Total Loans and OREO. 2.8 3.0 3.1 Allowance for Loan Losses/Non-performing Assets 248.5 241.7 176.9 Allowance for Loan Losses/Non-performing Loans. 273.6 251.6 217.8
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) 6/30/00 12/31/99 6/30/99 ------- -------- ------- Interest income which would have been recorded under original terms .................. $ 46 $ 105 $ 66 Interest income recorded during the period ... (1) (21) (5) ----- ----- ----- Net impact on interest income ................ $ 45 $ 84 $ 61 ===== ===== =====
At June 30, 2000 and December 31, 1999, DNB had impaired loans with a total recorded investment of $618,000 and $715,000, respectively, and an average recorded investment of $673,000 for the six month period ended June 30, 2000 and $1.0 million for the year ended December 31, 1999. As of June 30, 2000 and December 31, 1999, there was no related allowance for credit losses necessary for these impaired loans. Total cash collected on impaired loans was credited to the outstanding principal balance in the amount of $11,000 during the six months ended June 30, 2000, and $57,000 during the six months ended June 30, 1999. No interest income was recorded on such loans. 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 DNB's core deposit base. In addition to cash, DNB maintains a portfolio of short term investments to meet its liquidity requirements. DNB 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, 2000 DNB has $13.2 million in commitments to fund commercial real estate, construction and land development. In addition, DNB had commitments to fund $3.5 million in home equity lines of credit and $5.3 million in other unused commitments. Management anticipates the majority of these commitments will be funded by means of normal cash flows. In addition, $39.1 million of time deposits at DNB are scheduled to mature during the six months ending December 31, 2000. Management believes that the majority of such deposits will be reinvested with DNB and that certificates that are not renewed will be funded by cash flow from loans and investments. Stockholders' equity increased to $21.6 million at June 30, 2000 as a result of the $1.3 million profit reported for the six months then ended and after dividends paid totaling $419,000 year-to-date. The Bank's common equity position at June 30, 2000 exceeds the regulatory required minimums. The following table summarizes data and ratios pertaining to the Bank's capital structure.
(Dollars in thousands) To Be Well Capitalized For Capit Under Prompt Corrective Actual Adequacy Purposes Action Provisions ---------------- ------------------- ----------------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- Total risk-based capital $25,596 11.69% $17,520 8.00% $21,900 10.00% Tier I Capital .......... 22,831 10.43 8,760 4.00 13,140 6.00 Tier 1 (leverage) Capital 22,831 7.27 12,568 4.00 15,711 5.00
In addition, the Federal Reserve Bank (the "FRB") leverage ratio rules require bank holding companies to maintain a minimum level of "primary capital" to total assets of 5.5% and a minimum level of "total capital" to total assets of 6%. For this purpose, (i) "primary capital" includes, among other items, common stock, contingency and other capital reserves, and the allowance for loan losses, (ii) "total capital" includes, among other things, certain subordinated debt, and "total assets" is increased by the allowance for loan losses. DNB's primary capital ratio and its total capital ratio are both 8.3%, well in excess of FRB requirements. REGULATORY MATTERS 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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK To measure the impacts of longer-term asset and liability mismatches beyond two years, DNB utilizes Modified Duration of Equity and Economic Value of Portfolio Equity ("EVPE") models. The modified duration of equity measures the potential price risk of equity to changes in interest rates. A longer modified duration of equity indicates a greater degree of risk to rising interest rates. Because of balance sheet optionality, an EVPE analysis is also used to dynamically model the present value of asset and liability cash flows, with rates ranging up or down 200 basis points. The economic value of equity is likely to be different if rates change. Results falling outside prescribed ranges require action by management. At June 30, 2000 and December 31, 1999, DNB's variance in the economic value of equity as a percentage of assets with an instantaneous and sustained parallel shift of 200 basis points is within its negative 3% guideline, as shown in the tables below.
June 30, 2000 December 31, 1999 ---------------------------- --------------------------- Change in rates Flat -200bp +200bp Flat -200bp +200 bp ------ ------- ------- ----- ------ ------- Economic Value of Portfolio Equity ................................ 30,767 34,184 22,729 28,232 33,060 20,351 Change .................................................. 3,417 (8,039) 4,828 (7,881) Change as a % of assets ................................. 1.03% (2.43%) 1.60% (2.62%)
FORWARD-LOOKING STATEMENTS Certain statements in this report, including any which are not statements of historical fact, may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Without limiting the foregoing, the words "expect", "anticipate", "plan", "believe", "seek", "estimate", "predict", "internal" and similar words are intended to identify expressions that may be forward-looking statements. Forward-looking statements involve certain risks and uncertainties, and actual results may differ materially from those contemplated by such statements. For example, actual results may be adversely affected by the following possibilities: (1) competitive pressure among depository institutions may increase; (2) changes in interest rates may reduce banking interest margins; (3) general economic conditions and real estate values may be less favorable than contemplated; (4) adverse legislation or regulatory requirements may be adopted; (5) unexpected contingencies relating to Year 2000 compliance; and (6) other unexpected contingencies may arise. Many of these factors are beyond DNB's ability to control or predict. Readers of this report are accordingly cautioned not to place undue reliance on forward-looking statements. DNB disclaims any intent or obligation to update publicly any of the forward-looking statements herein, whether in response to new information, future events or otherwise. 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: Exhibit Number referred to in Item 601 of Regulation S-K Description of Exhibit ----------------------------- ---------------------- 27 Financial Data Schedule (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) DATE: August 14, 2000 ________________________________ Henry F. Thorne, President and Chief Executive Officer DATE: August 14, 2000 _________________________________ 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, 2000 /S/ Henry F. Thorne ------------------- Henry F. Thorne, President and Chief Executive Officer DATE: August 14, 2000 /S/ Bruce E. Moroney -------------------- Bruce E. Moroney Chief Financial Officer EX-27 2 0002.txt
9 0000713671 DNB FINANCIAL CORPORATION 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 11,238,879 1,678,125 7,516,000 0 76,484,529 47,198,880 46,168,771 176,752,068 4,958,068 330,178,279 273,580,536 3,977,000 3,256,125 27,743,909 0 0 1,611,339 20,009,370 330,178,279 7,214,907 3,828,119 109,832 11,152,858 4,954,753 5,686,613 5,466,245 0 0 4,382,324 1,896,099 1,318,099 0 0 1,318,099 .82 .84 7.67 1,145,611 626,740 40,000 7,993,000 5,085,078 155,248 28,238 4,958,068 4,958,068 0 0
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