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: March 31, 1997
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) 691,422
(Class) (Shares Outstanding as of
May 14, 1997)
___________________________________________________________________________
<PAGE>
DNB FINANCIAL CORPORATION AND SUBSIDIARY
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
ITEM 1. FINANCIAL STATEMENTS:
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 1997 and December 31, 1996 3
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1997 and 1996 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1997 and 1996 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997 and December 31, 1996 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 2. CHANGE IN SECURITIES 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF 14
SECURITY HOLDERS
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
<PAGE>
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
<S> <C> <C>
Assets
Cash and due from banks ............................................................... $ 7,815,034 $ 6,636,470
Federal funds sold .................................................................... -- 4,833,000
Investment securities available for sale, at market value ............................. 20,477,627 21,678,879
Investment securities (market value $45,151,652
in 1997 and $49,195,997 in 1996) ................................................... 45,280,368 48,871,142
Loans, net of unearned income ......................................................... 127,607,907 121,572,569
Allowance for possible loan losses ................................................. (5,144,298) (5,112,486)
----------- -----------
Net loans ............................................................................. 122,463,609 116,460,083
----------- -----------
Office property and equipment ......................................................... 3,893,691 3,986,502
Accrued interest receivable ........................................................... 1,665,959 1,562,565
Other real estate owned ............................................................... 1,010,500 1,010,500
Deferred income taxes ................................................................. 887,735 866,354
Other assets .......................................................................... 1,350,087 1,222,594
----------- -----------
Total assets .......................................................................... $ 204,844,610 $ 207,128,089
=========== ===========
Liabilities and Stockholders' Equity
Liabilities
Non-interest-bearing deposits ......................................................... $ 24,030,217 $ 26,428,509
Interest-bearing deposits:
NOW ................................................................................ 31,269,652 31,140,486
Money market ....................................................................... 17,596,798 15,549,927
Savings ............................................................................ 29,508,172 28,558,535
Time ............................................................................... 76,508,226 76,746,106
----------- -----------
Total deposits ........................................................................ 178,913,065 178,423,563
----------- -----------
Federal funds purchased ............................................................... 847,000 --
Repurchase agreements ................................................................. 4,004,146 11,225,273
Federal Home Loan Bank advances ....................................................... 3,000,000 --
Accrued interest payable .............................................................. 528,543 454,574
Other liabilities ..................................................................... 897,938 808,665
----------- -----------
Total liabilities ..................................................................... 188,190,692 190,912,075
----------- -----------
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;
691,422 issued and outstanding ..................................................... 6,914,220 6,914,220
Surplus ............................................................................... 5,300,832 5,196,292
Retained earnings ..................................................................... 4,525,411 4,127,905
Net unrealized loss on investment securities
available for sale, net of tax ..................................................... (86,545) (22,403)
Total stockholders' equity ............................................................ 16,653,918 16,216,014
----------- -----------
Total liabilities and stockholders' equity ............................................ $ 204,844,610 $ 207,128,089
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For Three months Ended March 31
1997 1996
<S> <C> <C>
Interest Income:
Interest and fees on loans .......................................................................... $2,726,103 $2,649,180
Interest on taxable investment securities ........................................................... 1,168,411 883,153
Interest on Federal funds sold ...................................................................... 34,101 102,549
--------- ---------
Total interest income ............................................................................... 3,928,615 3,634,882
--------- ---------
Interest Expense:
Interest on time deposits ........................................................................... 1,030,752 986,146
Interest on NOW, money market and savings ........................................................... 487,629 482,709
Interest on repurchase agreements ................................................................... 85,919 93,078
Interest on FHLB advances ........................................................................... 28,000 --
Interest on Federal funds purchased ................................................................. 2,902 999
--------- ---------
Total interest expense .............................................................................. 1,635,202 1,562,932
--------- ---------
Net interest income ................................................................................. 2,293,413 2,071,950
--------- ---------
Provision for possible loan losses .................................................................. -- --
Net interest income after provision for possible loan losses ........................................ 2,293,413 2,071,950
--------- ---------
Non-interest Income:
Service charges ..................................................................................... 65,226 79,225
Trust income ........................................................................................ 91,432 70,059
Other ............................................................................................... 61,362 43,753
--------- ---------
Total non-interest income ........................................................................... 218,020 193,037
--------- ---------
Non-interest Expense:
Salaries and employee benefits ...................................................................... 976,824 955,055
Occupancy ........................................................................................... 110,716 123,233
Furniture and equipment ............................................................................. 165,667 169,650
FDIC insurance ...................................................................................... 18,276 11,699
Professional and consulting ......................................................................... 63,297 80,925
Printing and supplies ............................................................................... 52,119 57,434
Insurance ........................................................................................... 22,109 32,530
Advertising and marketing ........................................................................... 44,765 41,616
PA shares tax ....................................................................................... 35,644 34,781
Postage ............................................................................................. 22,778 43,742
Other ............................................................................................... 146,907 157,629
--------- ---------
Total non-interest expense .......................................................................... 1,659,102 1,708,294
--------- ---------
Income before income taxes .......................................................................... 852,331 556,693
Income tax expense .................................................................................. 212,000 103,000
--------- ---------
Net income .......................................................................................... $ 640,331 $ 453,693
========= =========
Per Common Share Data:
Net income .......................................................................................... $ 0.93 $ 0.66
Cash dividends ...................................................................................... 0.20 0.10
Weighted average number of common shares
outstanding ......................................................................................... 691,422 691,422
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended March 31
1997 1996
<S> <C> <C>
Cash Flows From Operating Activities:
Net income ......................................................................................... $ 640,331 $ 453,693
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, amortization and accretion ........................................................... 77,256 97,863
(Increase) decrease in interest receivable ......................................................... (103,394) 296,036
Increase in other assets ........................................................................... (127,493) (103,550)
Increase in interest payable ....................................................................... 73,969 39,391
Increase in current taxes payable .................................................................. 187,000 63,000
Decrease in other liabilities ...................................................................... (97,727) (4,774)
Decrease in unearned discount ...................................................................... (28,694) (68,532)
----------- -----------
Net Cash Provided By Operating Activities .......................................................... 621,248 773,127
=========== ===========
Cash Flows From Investing Activities:
Proceeds from maturities & paydowns of AFS securities .............................................. 1,137,289 7,505,776
Proceeds from maturities & paydowns of HTM securities .............................................. 7,260,251 6,982,445
Purchase of AFS securities ......................................................................... -- (4,199,868)
Purchase of HTM securities ......................................................................... (3,664,450) (8,596,738)
Net (increase) decrease in loans ................................................................... (5,974,832) 934,340
Purchase of bank property and equipment ............................................................ (11,032) (39,740)
----------- -----------
Net Cash (Used) Provided By Investing Activities ................................................... (1,252,774) 2,586,215
----------- -----------
Cash Flows From Financing Activities:
Net increase in deposits ........................................................................... 489,502 2,717,678
Increase in Federal funds purchased ................................................................ 847,000 --
Decrease in repurchase agreements .................................................................. (7,221,127) (1,139,933)
Increase in FHLB advances .......................................................................... 3,000,000 --
Dividends paid ..................................................................................... (138,285) (65,879)
----------- ------------
Net Cash (Used) Provided By Financing Activities ................................................... (3,022,910) 1,511,866
----------- ------------
Net Change in Cash and Cash Equivalents ............................................................ (3,654,436) 4,871,208
Cash and Cash Equivalents at Beginning of Period ................................................... 11,469,470 15,794,175
----------- ------------
Cash and Cash Equivalents at End of Period ......................................................... $ 7,815,034 $ 20,665,383
=========== ============
Supplemental Disclosure Of Cash Flow Information:
Cash paid during the period for:
Interest ........................................................................................... $ 1,561,233 $ 1,523,541
Taxes .............................................................................................. 25,000 100,000
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
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 "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. The results of operations for the three months ended
March 31, 1997 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, 1996.
NOTE 2: FEDERAL INCOME TAXES
DNB accounts for income taxes in accordance with the asset and liability
method of accounting for income taxes. Under this method, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases.
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 691,422 for the three months ended March
31, 1997 and 1996. Per share net income and dividends have been adjusted for the
five percent (5%) stock dividend paid in 1996.
NOTE 4: RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued SFAS No. 128, Earning Per Share. This
statement establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock or potential
common stock. This Statement simplifies the standards for computing earnings per
share previously found in APB Opinion No. 15, Earnings per Share, and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. This Statement is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods, earlier application is not permitted. This Statement requires
restatement of all prior-period EPS data presented. The adoption of this
statement does not have a material impact on DNB's EPS disclosure.
<PAGE>
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 $204.8 million at March 31, 1997 compared to $207.1
million at December 31, 1996. Total loans, net of unearned income, were $127.6
million, up $6.0 million or 5% from $121.6 million at December 31, 1996. Total
investment securities (AFS and HTM) were $65.8 million, down $4.8 million or 7%
from $70.6 million at December 31, 1996. The increase in loans was funded from
maturities and paydowns in the investment portfolio and a reduction in Federal
funds sold.
Deposits and other borrowings at March 31, 1997 totaled $186.8 million,
compared to $189.6 million at December 31, 1996. Decreases of $3.4 million and
$2.4 million in other borrowings and non-interest bearing deposits,
respectively, were partially offset by increases of $2.0 million and $950,000 in
money market and savings deposits.
At March 31, 1997, total stockholders' equity was $16.7 million or $24.10
per share, compared to $16.2 million or $23.45 per share at December 31, 1996.
The increase in stockholders' equity was the result of net income of $640,331
for the three months ended March 31, 1997, offset by dividends paid of
approximately $138,000 or $.20 per share.
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 earned on loans, investments
and Federal funds sold over interest expense on deposits and other borrowings.
Net interest income increased $221,000 or 10.7% to $2.3 million for the
three month period ended March 31, 1997. As shown in the following table, the
increase in net interest income for the three month period ended March 31, 1997
was largely attributable to the positive effects of volume changes and to a
lesser extent, to the positive effects of rate changes. There was a $171,000 net
benefit from changes in volume due largely to increased loans and investments,
offset somewhat by increased time deposits, savings deposits and other
borrowings. The positive impact from rate changes was attributable to lower
yields on time deposits and other interest bearing liabilities as deposits that
paid higher rates in the first quarter of 1996 matured or repriced at lower
rates during the remainder of the year.
The following table 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 months ended March 31, 1997 and 1996. 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
<PAGE>
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.
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997
Compared to 1996
---------------------------------
Change Due to
(Dollars in Thousands) Rate Volume Total
----- ------ -----
<S> <C> <C> <C>
Loans ................................................................. $ (45) $ 122 $ 77
Investments ........................................................... 18 267 285
Federal funds sold .................................................... 13 (82) (69)
----- ------ -----
Total ............................................................ (14) 307 293
----- ------ -----
Interest-bearing liabilities:
Time deposits ......................................................... (37) 81 44
Savings deposits ...................................................... (16) 21 5
Other borrowings ...................................................... (11) 34 23
Total ............................................................. (64) 136 72
----- ----- -----
Net Interest Income ................................................... $ 50 $ 171 $ 221
===== ===== =====
</TABLE>
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, 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.
Determining the level of the allowance for possible loan losses at any
given date is difficult, particularly in an uncertain economic environment.
DNB's management must make estimates, using assumptions and information which
are often subjective and rapidly changing. These estimates are particularly
susceptible to changes that may result in a material adjustment to the allowance
for possible loan losses.
DNB made no provisions for possible loan losses during the three month
periods ended March 31, 1997 and 1996, based on available information, as well
as the continuing improvement in the quality of the loan portfolio.
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.
<PAGE>
<TABLE>
<CAPTION>
3 Months Year 3 Months
Ended Ended Ended
(Dollars in Thousands) 3/31/97 12/31/96 3/31/96
<S> <C> <C> <C>
Beginning Balance .......................... $ 5,112 $ 5,515 $ 5,515
Provisions ................................. -- -- --
Loans charged off:
Real estate ......................... -- (454) --
Commercial .......................... -- (50) --
Consumer ............................ (1) (30) (10)
------- ------- -------
Total charged off ............... (1) (534) (10)
------- ------- -------
Recoveries:
Real estate ......................... -- 38 --
Commercial .......................... 4 48 5
Consumer ............................ 29 45 11
Total recoveries ................ 33 131 16
------- ------- -------
Net Recoveries (Charge-offs) ............... 32 (403) 6
------- ------- -------
Ending Balance ............................. $ 5,144 $ 5,112 $ 5,521
======= ======= =======
</TABLE>
Management believes that DNB has adequate reserves at March 31, 1997,
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 1996. The OCC's examination was as of September 30,
1996 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 March 31, 1997, non-interest income was
$218,000, compared to $193,000 for the same three month period in 1996. Trust
income was up $21,000 while service charges and other income were up a combined
$4,000 during the three month period ended March 31, 1997, compared to the same
period in 1996.
<PAGE>
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.
Overall, non-interest expenses decreased $49,000 for the three months ended
March 31, 1997, compared to the same period in 1996. The decrease for the three
month period resulted from decreases in occupancy, furniture & equipment,
professional & consulting, insurance, postage, printing & supplies, and "other"
expenses. These decreases were partially offset by increases in salaries &
employee benefits, FDIC insurance and advertising & marketing expense.
Salaries & employee benefits increased $22,000 or 2.3% to $977,000 for the
three months ended March 31, 1997 compared to $955,000 for the same period in
1996. The increase in this category has been caused by normal salary merit
increases offset modestly by cost savings associated with fewer full-time
equivalent employees.
Occupancy expense decreased $13,000 or 10.2% to $111,000 for the three
months ended March 31, 1997, compared to $123,000 for the same period in 1996.
The decrease was caused by additional costs incurred in 1996 for snow removal
and salting which were not incurred in 1997.
Professional & consulting expense decreased approximately $18,000 or 21.8%
to $63,000 for the three months ended March 31, 1997, compared to the same
period in 1996, due primarily to reduced legal expenses. Postage expense
decreased $21,000 or 47.9% to $23,000 for the three months ended March 31, 1997
as the Bank recognized cost savings as a result of Check Imaging.
Printing & supplies, insurance and "other" expenses decreased a total of
$26,000 for the three month period ended March 31, 1997 as a result of
management's continued focus on examining procedures and methods for cost
savings within each functional area of the bank.
Income Taxes
Income tax expense was $212,000 for the three months ended March 31, 1997
and $103,000 for the three months ended March 31, 1996. The rates used for
income taxes for both periods were less than the statutory rate as the
Corporation recognized certain deferred tax assets 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, troubled debt restructurings ("TDRs") 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.
<PAGE>
TDRs are loans which have been restructured and meet all the criteria of
such a loan as outlined in SFAS No. 15, Accounting by Debtors and Creditors For
Troubled Debt Restructurings ("SFAS No. 15").
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) placed on
nonaccrual status, (ii) contractually delinquent by 90 days or more and still
accruing (iii) troubled debt restructurings other than those included in items
(i) and (ii), and (iv) other real estate owned as a result of foreclosure or
voluntary transfer to DNB.
<TABLE>
<CAPTION>
March 31 Dec. 31 March 31
(Dollars in Thousands) 1997 1996 1996
<S> <C> <C> <C>
Nonaccrual Loans
Residential mortgage ............................................... $ 863 $ 743 $1,116
Commercial mortgage ................................................ 1,158 1,315 2,082
Commercial ......................................................... 630 650 669
Consumer ........................................................... 141 187 240
------ ------ ------
Total nonaccrual loans .................................................. 2,792 2,895 4,107
------ ------ ------
Consumer loans 90 days past due and still accruing ...................... 22 194 70
Troubled debt restructurings ............................................ -- 184 --
------ ------ ------
Total non-performing loans .............................................. 2,814 3,273 4,177
Other real estate owned ................................................. 1,010 1,010 810
------ ------ ------
Total non-performing assets ............................................. $3,824 $4,283 $4,987
====== ====== ======
</TABLE>
If interest income had been recorded on nonaccrual loans and trouble debt
restructurings, interest would have been increased as shown in the following
table:
<TABLE>
<CAPTION>
3 Months Year 3 Months
Ended Ended Ended
(Dollars in thousands) 3/31/97 12/31/96 3/31/96
<S> <C> <C> <C>
Interest income which would have been recorded
under original terms .......................................... $ 58 $ 254 $ 91
Interest income recorded during the period ........................... (6) (80) (8)
------ ------ -----
Net impact on interest income ........................................ $ 52 $ 174 $ 83
====== ====== =====
</TABLE>
As of March 31, 1997, DNB had impaired loans with a total recorded
investment of $1.3 million and an average recorded investment for the three
month period ended March 31, 1997 of $1.4 million. As of March 31, 1997, there
were no impaired loans for which a related allowance
<PAGE>
for credit losses is necessary. The amount of the recorded investment in
impaired loans for which there was no related allowance for credit losses at
March 31, 1997 is $1.3 million. Total cash collected on impaired loans was
credited to the outstanding principal balance in the amount of $38,000 during
the three months ended March 31, 1997. No interest income was recorded on such
loans.
As of December 31, 1996, DNB had impaired loans with a total recorded
investment of $1.4 million and an average recorded investment for the year ended
December 31, 1996 of $1.6 million. As of December 31, 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 was $160,000. The amount of the
recorded investment in impaired loans for which there was no related allowance
for credit losses at December 31, 1996 was $1.3 million. Total cash collected on
impaired loans was credited to the outstanding principal balance in the amount
of $27,000 during the quarter ended March 31,1996. No interest income was
recorded on such loans.
The following table sets forth DNB's asset quality and allowance coverage
ratios at the dates indicated:
<TABLE>
<CAPTION>
March 31 Dec. 31 March 31
1997 1996 1996
<S> <C> <C> <C>
Non-performing Loans/Total Loans .......................................... 2.2% 2.7% 3.6%
Non-performing Assets/Total Loans and OREO ................................ 3.0 3.5 4.2
Allowance for Loan & Lease Losses/Total Loans ............................. 4.0 4.2 4.7
Allowance for Loan & Lease Losses/Total Loans and OREO .................... 4.0 4.2 4.7
Allowance for Loan & Lease Losses/Non-performing Assets ................... 134.5 119.4 110.7
Allowance for Loan & Lease Losses/Non-performing Loans .................... 182.8 156.2 132.2
</TABLE>
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 March 31, 1997 DNB has $12.3 million in commitments to fund commercial
real estate, construction and land development. In addition, DNB had commitments
to fund $700,000 in home equity lines of credit and $6.0 million in other unused
commitments. Management anticipates the majority of these commitments will be
funded by means of normal cash flows. In addition, $53.7 million of certificates
of deposit at DNB are scheduled to mature during the nine months ending December
31, 1997. Management believes that the majority of such deposits will be
reinvested with DNB.
Stockholders' equity increased to $16.6 million at March 31, 1997 as a
result of the $640,000 profit reported for the three months then ended and after
dividends paid totaling approximately $138,000. 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 1997 regulatory
<PAGE>
required minimums. The following table summarizes data and ratios
pertaining to the Bank's capital structure.
<TABLE>
<CAPTION>
(Dollars in Thousands)
March 31, 1997
<S> <C>
Tier I Capital:
Common stock ................................................. $ 6,914
Surplus ...................................................... 5,301
Undivided profits ............................................ 4,525
-------
Total .................................................... 16,740
Tier II Capital ................................................. 1,749
-------
Total Capital ................................................... $18,489
=======
</TABLE>
<TABLE>
<CAPTION>
Required Current Excess
<S> <C> <C> <C>
Leverage ..................................... 5.00% 8.22% 3.22%
Tier I ....................................... 4.00 12.26 8.26
Risk-based ................................... 8.00 13.55 5.55
</TABLE>
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
possible loan losses, (ii) "total capital" includes, among other things, certain
subordinated debt, and "total assets" is increased by the allowance for possible
loan losses. DNB's primary capital ratio and its total capital ratio are both
10.4%, 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.
<PAGE>
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
At the Corporation's Annual Meeting held April 22, 1997, the
stockholders voted as follows:
A. Election of Class "B" Directors:
Robert J. Charles
For: 457,882 Against: 21,707 Abstain: --
Vernon J. Jameson
For: 459,072 Against: 20,517 Abstain: --
Henry F. Thorne
For: 471,932 Against: 7,657 Abstain: --
B. Ratification of appointment of KPMG Peat Marwick LLP as
independent auditors of the Corporation, for the fiscal year
ending December 31, 1997:
For: 475,693 Against: 2,884 Abstain: 1,052
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6.
(a) EXHIBITS:
Not Applicable
(b) REPORTS ON FORM 8-K
Not Applicable
<PAGE>
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: May 14, 1997 /S/ Henry F. Thorne
---------------------------
Henry F. Thorne, President
and Chief Executive Officer
DATE: May 14, 1997 /S/ Bruce E. Moroney
---------------------------
Bruce E. Moroney
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,295,806
<INT-BEARING-DEPOSITS> 519,228
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,477,627
<INVESTMENTS-CARRYING> 45,280,368
<INVESTMENTS-MARKET> 45,151,652
<LOANS> 127,607,907
<ALLOWANCE> 5,144,298
<TOTAL-ASSETS> 204,844,610
<DEPOSITS> 178,913,065
<SHORT-TERM> 7,851,146
<LIABILITIES-OTHER> 1,426,481
<LONG-TERM> 0
0
0
<COMMON> 6,914,220
<OTHER-SE> 9,826,243
<TOTAL-LIABILITIES-AND-EQUITY> 204,844,610
<INTEREST-LOAN> 2,726,103
<INTEREST-INVEST> 1,168,411
<INTEREST-OTHER> 34,101
<INTEREST-TOTAL> 3,928,615
<INTEREST-DEPOSIT> 1,518,381
<INTEREST-EXPENSE> 1,635,202
<INTEREST-INCOME-NET> 2,293,413
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,659,102
<INCOME-PRETAX> 852,331
<INCOME-PRE-EXTRAORDINARY> 640,331
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 640,331
<EPS-PRIMARY> 0.93
<EPS-DILUTED> 0.93
<YIELD-ACTUAL> 8.17
<LOANS-NON> 2,791,514
<LOANS-PAST> 22,411
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 6,594,000
<ALLOWANCE-OPEN> 5,112,486
<CHARGE-OFFS> 883
<RECOVERIES> 32,695
<ALLOWANCE-CLOSE> 5,144,298
<ALLOWANCE-DOMESTIC> 5,144,298
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
