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, 1998
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) 1,451,961
(Class) (Shares Outstanding as of
May 8, 1998)
________________________________________________________________________________
<PAGE>
DNB FINANCIAL CORPORATION AND SUBSIDIARY
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
ITEM 1. FINANCIAL STATEMENTS:
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 1998 and December 31, 1997 3
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1998 and 1997 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1998 and 1997 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998 and December 31, 1997 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGE IN SECURITIES 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF 15
SECURITY HOLDERS
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)
March 31, December 31,
1998 1997
----------- -----------
<S> <C> <C> 2
Assets
Cash and due from banks ................................. $ 8,029,036 $ 7,503,007
Federal funds sold ...................................... 17,752,000 15,889,000
Investment securities available for sale, at market value 15,157,895 13,888,462
Investment securities (market value $50,703,310
in 1998 and $49,863,493 in 1997) ..................... 50,556,906 49,694,161
Loans, net of unearned income ........................... 131,851,408 129,954,114
Allowance for loan losses ............................ (5,100,434) (5,280,958)
----------- -----------
Net loans ............................................... 126,750,974 124,673,156
----------- -----------
Office property and equipment ........................... 3,600,692 3,644,581
Accrued interest receivable ............................. 1,376,779 1,584,213
Other real estate owned ................................. 402,222 231,187
Deferred income taxes ................................... 983,264 977,981
Other assets ............................................ 1,728,661 1,365,317
----------- -----------
Total assets ............................................ $ 226,338,429 $ 219,451,065
=========== ===========
Liabilities and Stockholders' Equity
Liabilities
Non-interest-bearing deposits ........................... $ 26,947,259 $ 27,149,502
Interest-bearing deposits:
NOW .................................................. 34,784,321 33,386,755
Money market ......................................... 23,212,036 19,289,128
Savings .............................................. 28,366,572 27,714,419
Time ................................................. 87,542,245 91,697,168
----------- -----------
Total deposits .......................................... 200,852,433 199,236,972
----------- -----------
Federal Home Loan Bank advances ......................... 5,000,000 --
Accrued interest payable ................................ 863,772 830,533
Other liabilities ....................................... 804,299 1,027,997
----------- -----------
Total liabilities ....................................... 207,520,504 201,095,502
----------- -----------
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; 1,451,961 and
1,451,661 issued and outstanding, respectively ....... 14,519,610 14,516,610
Surplus ................................................. 1,696,872 1,542,160
Retained earnings ....................................... 2,598,600 2,276,556
Accumulated other comprehensive income .................. 2,843 20,237
----------- -----------
Total stockholders' equity .............................. 18,817,925 18,355,563
----------- -----------
Total liabilities and stockholders' equity .............. $ 226,338,429 $ 219,451,065
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended March 31
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
Interest Income:
Interest and fees on loans .................................... $2,862,993 $2,726,103
Interest on taxable investment securities ..................... 1,119,693 1,168,411
Interest on Federal funds sold ................................ 180,981 34,101
--------- ---------
Total interest income ......................................... 4,163,667 3,928,615
--------- ---------
Interest Expense:
Interest on time deposits ..................................... 1,250,157 1,030,752
Interest on NOW, money market and savings ..................... 557,834 487,629
Interest on repurchase agreements ............................. 673 85,919
Interest on FHLB advances ..................................... 38,170 28,000
Interest on Federal funds purchased ........................... -- 2,902
--------- ---------
Total interest expense ........................................ 1,846,834 1,635,202
--------- ---------
Net interest income .............................................. 2,316,833 2,293,413
Provision for loan losses ........................................ -- --
--------- ---------
Net interest income after provision for loan losses 2,316,833 2,293,413
--------- ---------
Non-interest Income:
Service charges ............................................... 141,140 90,251
Trust income .................................................. 133,929 91,432
Other ......................................................... 63,225 61,362
--------- ---------
Total non-interest income ..................................... 338,294 243,045
--------- ---------
Non-interest Expense:
Salaries and employee benefits ................................ 1,078,279 976,824
Furniture and equipment ....................................... 148,974 165,667
Occupancy ..................................................... 100,113 110,716
Professional and consulting ................................... 68,980 63,297
Printing and supplies ......................................... 57,463 52,119
Advertising and marketing ..................................... 44,898 44,765
PA shares tax ................................................. 38,017 35,644
Postage ....................................................... 27,664 22,778
Insurance ..................................................... 22,877 22,109
FDIC insurance ................................................ 5,947 18,276
Other ......................................................... 160,909 171,932
--------- ---------
Total non-interest expense .................................... 1,754,121 1,684,127
--------- ---------
Income before income taxes ....................................... 901,006 852,331
Income tax expense ............................................... 250,000 212,000
--------- ---------
NET INCOME ....................................................... $651,006 $640,331
========= =========
EARNINGS PER SHARE:
Basic ......................................................... $0.45 $0.44
Diluted ....................................................... $0.43 $0.44
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic ......................................................... 1,451,674 1,451,661
Diluted ....................................................... 1,499,767 1,466,102
Cash dividends per share ...................................... $0.12 $0.10
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended March 31
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income ............................................. $ 651,006 $ 640,331
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, amortization and accretion ............... 135,499 77,256
Decrease (increase) in interest receivable ............. 207,434 (103,394)
Increase in other assets ............................... (363,344) (127,493)
Increase in interest payable ........................... 33,239 73,969
Increase in current taxes payable ...................... 225,000 187,000
Decrease in other liabilities .......................... (448,698) (97,727)
--------- ---------
Net Cash Provided By Operating Activities .............. 440,136 649,942
--------- ---------
Cash Flows From Investing Activities:
Proceeds from maturities & paydowns of AFS securities .. 5,161,578 1,137,289
Proceeds from maturities & paydowns of HTM securities .. 7,698,599 7,260,251
Purchase of AFS securities ............................. (6,457,813) --
Purchase of HTM securities ............................. (8,591,966) (3,664,450)
Net increase in loans .................................. (2,248,853) (6,003,526)
Purchase of bank property and equipment ................ (56,863) (11,032)
---------- ----------
Net Cash Used By Investing Activities .................. (4,495,318) (1,281,468)
---------- ----------
Cash Flows From Financing Activities:
Net increase in deposits ............................... 1,615,461 489,502
Increase in Federal funds purchased .................... -- 847,000
Decrease in repurchase agreements ...................... -- (7,221,127)
Increase in FHLB advances .............................. 5,000,000 3,000,000
Dividends paid ......................................... (174,199) (138,285)
Proceeds form issuance of common stock ................. 2,949 --
---------- ----------
Net Cash Provided (Used) By Financing Activities ....... 6,444,211 (3,022,910)
---------- ----------
Net Change in Cash and Cash Equivalents ................ 2,389,029 (3,654,436)
Cash and Cash Equivalents at Beginning of Period ....... 23,392,007 11,469,470
---------- ----------
Cash and Cash Equivalents at End of Period ............. $25,781,036 $7,815,034
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ............................................ $1,813,595 $1,561,233
Taxes ............................................... 360,000 25,000
SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW INFORMATION:
Transfer of loans to OREO ........................... $171,035 --
</TABLE>
See accompanying notes to consolidated financial statements.
5
<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. Prior period amounts not affecting net income are
reclassified when necessary to conform with current year classifications. The
results of operations for the three months ended March 31, 1998 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, 1997.
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
reflects the potential dilution that could occur from the conversion of common
stock equivalents and is computed using the treasury stock method. 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 1997
and the September 1997 two-for-one stock split, effected in the form of a 100%
dividend. Net income and weighted average number of shares outstanding for basic
and diluted EPS for the three months ended March 31, 1998 and 1997 are
reconciled as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------- ----------------------------
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS:
Income available to common stockholders $651,006 1,451,674 $ 0.45 $640,331 1,451,661 $0.44
Effect of dilutive common stock
equivalents-stock options ........... -- 48,093 0.02 -- 14,441 --
------- --------- ----- ------- --------- ----
DILUTED EPS ........................... $651,006 1,499,767 $0.43 $640,331 1,466,102 $0.44
======= ========= ===== ======= ========= ====
</TABLE>
6
<PAGE>
NOTE 3: COMPREHENSIVE INCOME
On January 1, 1998, DNB adopted SFAS 130, Reporting Comprehensive Income.
This statement establishes standards for reporting comprehensive income, which
includes all changes in stockholders' equity during the period, except those
resulting from investments by owners and distributions to owners. DNB's
comprehensive income for the three months ended March 31, 1998 and 1997 was
$633,612 and $704,473, respectively, and consisted of net income and the change
in unrealized gains on investment securities available for sale.
NOTE 4: RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information ("SFAS No. 131"). SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997, but need not be applied to interim financial
statements in the initial year of application. The impact, if any, of this
statement on DNB would be to require additional disclosures in DNB's financial
statements.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits ("SFAS No. 132"). This
statement amends the disclosure requirements of Statements No. 87, Employers'
Accounting for Pensions ("Statement No. 87"), No. 88, Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pensions Plans and for
Termination Benefits ("Statement No. 88"), and No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions ("Statement No. 106"). SFAS No.
132 is applicable to all entities. This statement standardizes the disclosure
requirements of Statements No. 87 and No. 106 to the extent practicable and
recommends a parallel format for presenting information about pensions and other
postretirement benefits. SFAS No. 132 only addresses disclosure and does not
change any of the measurement or recognition provisions provided for in
Statements No. 87, No. 88, or No. 106. The statement is effective for fiscal
years beginning after December 15, 1997. Restatement of comparative period
disclosures is required unless the information is not readily available, in
which case the notes to the financial statements should include all available
information and a description of the information not available. The impact, if
any, of this statement on DNB would be to require additional disclosures in
DNB's financial statements.
7
<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 $226.3 million at March 31, 1998 compared to $219.5
million at December 31, 1997. Total loans, net of unearned income, increased
$1.9 million or 1% to $131.9 million from $130.0 million at December 31, 1997.
Total investment securities (AFS and HTM) increased $2.1 million or 3% to $65.7
million from $63.6 million at December 31, 1997, while Federal funds sold
increased $1.9 million to $17.8 million at March 31, 1998.
Deposits and other borrowings at March 31, 1998 totaled $205.9 million,
compared to $199.2 million at December 31, 1997. The increase was attributable
to $5.0 million in FHLB advances outstanding at March 31, 1998, as well as an
increase in total deposits of $1.6 million.
At March 31, 1998, total stockholders' equity was $18.8 million or $12.96
per share, compared to $18.4 million or $12.64 per share at December 31, 1997.
The increase in stockholders' equity was the result of net income of $651,006
for the three months ended March 31, 1998, offset by dividends paid of
approximately $174,000 or $.12 per share.
RESULTS OF OPERATIONS
NET INTEREST INCOME
DNB' 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 (net of interest reversals on
non-performing loans), investments, Federal funds sold and interest-earning
cash, as well as loan fees and dividend income. Interest expense includes
interest cost for deposits, repurchase agreements, Federal funds purchased,
Federal Home Loan Bank advances, and other borrowings.
Net interest income increased $23,000 or 1% to $2.3 million for the three
month period ended March 31, 1998. As shown in the following table, the increase
in net interest income for the three month period ended March 31, 1998 was
attributable to the positive effects of volume changes significantly offset by
the negative effects of rate changes. There was a $107,000 net benefit from
changes in volume due largely to increased loans and Federal funds sold, offset
by increased time and savings deposits. The negative impact from rate changes
was attributable to lower yields on all interest-earning assets and higher rates
on interest-bearing deposits.
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, 1998 and 1997. 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.
8
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
Compared to 1997
---------------------------------
Increase (Decrease) Due to
---------------------------------
(Dollars in thousands) Rate Volume Total
---------- -------- -----------
<S> <C> <C> <C>
Interest-earning assets:
Loans ....................... $(48) $185 $137
Investments ................. (12) (37) (49)
Federal funds sold .......... (2) 149 147
--- --- ---
Total .................. (62) 297 235
--- --- ---
Interest-bearing liabilities:
Time deposits ............... 29 191 220
Savings deposits ............ 40 30 70
Other borrowings ............ (47) (31) (78)
--- --- ---
Total ................... 22 190 212
--- --- ---
Net Interest Income ......... $(84) $107 $23
=== === ===
</TABLE>
PROVISION FOR LOAN LOSSES
To provide for potential losses inherent in the loan portfolio, DNB
maintains an allowance for loan losses. In establishing its allowance for loan
losses, management considers the size and risk exposure of each segment of the
loan portfolio, past loss experience, delinquency rates, collateral values, the
potential for losses in future periods, and other relevant factors. In assessing
this risk, management considers external factors which affect the portfolio,
such as economic and delinquency trends, as well as internal factors such as
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.
To maintain an adequate allowance, management charges the provision for
loan losses against income. There were no provisions made during the three
months ended March 31, 1998, as the quality of DNB's loan portfolio continued to
show improvement, based on available information. Effective workout strategies,
fewer assets classified by internal loan review, sales of OREO properties and
other reductions in non-performing assets have temporarily eliminated the need
to make additional provisions.
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.
9
<PAGE>
<TABLE>
<CAPTION>
3 Months Year 3 Months
Ended Ended Ended
(Dollars in thousands) 3/31/98 12/31/97 3/31/97
------- -------- -------
<S> <C> <C> <C>
Beginning Balance ........................ $5,281 $5,112 $5,112
Provisions ............................... -- -- --
Loans charged off:
Real estate ....................... (59) -- --
Commercial ........................ (129) (32) --
Consumer .......................... -- (16) (1)
----- ----- -----
Total charged off ............. (188) (48) (1)
----- ----- -----
Recoveries:
Real estate ....................... -- 1 --
Commercial ........................ 4 167 4
Consumer .......................... 3 49 29
----- ----- -----
Total recoveries .............. 7 217 33
----- ----- -----
Net Charge-offs (Recoveries) ............. (181) 169 32
----- ----- -----
Ending Balance ........................... $5,100 $5,281 $5,144
===== ===== =====
</TABLE>
NON-INTEREST INCOME
Total non-interest income includes service charges on deposit products,
fees received by DNB's Investment Services and Trust Division, and other less
significant sources of income such as fees for safe deposit box rentals, issuing
travelers' checks and money orders, check cashing, collecting bills for local
municipalities and similar activities.
For the three month period ended March 31, 1998, non-interest income was
$338,000, compared to $243,000 for the same three month period in 1997. The
improvement in non-interest income can be attributed to significant increases in
service charge income as well as increased trust income.
Service charge income for the three months ended March 31, 1998 was
$141,000 compared to $90,000 for the same period in 1997. Increased NSF fees and
ATM/debit card income accounted for the improvement in this area. Management has
made an effort to control its waived fees, while maintaining quality service to
its customers in this competitive environment.
Trust income for the three months ended March 31, 1998 was $134,000
compared to $91,000 for the same period in 1997. The increase in Trust income
was due primarily to a higher number of estate settlements in the first quarter
of 1998 compared to 1997.
10
<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 increased $70,000 for the three months ended
March 31, 1998, compared to the same period in 1997. The increase for the three
month period resulted primarily from increases in salaries & employee benefits.
Furniture & equipment, occupancy, FDIC insurance, and other expenses decreased
modestly, partially offsetting the overall increase in overhead expenses.
Salaries & employee benefits increased $101,000 or 10% to $1,078,000 for
the three months ended March 31, 1998 compared to $977,000 for the same period
in 1997. The increase in this category was caused by normal salary merit
increases, increased hospitalization expense and added fees to employment
agencies for temporary services.
Occupancy and furniture & equipment expense decreased $11,000 and $17,000,
respectively, for the three months ended March 31, 1998, compared to the same
period in 1997. The decrease in occupancy expense was caused by higher costs
incurred in 1997 for repairs and maintenance of the branches. The decrease in
furniture & equipment expense was due to the recognition of a maintenance
contract refund.
Other non-interest expenses decreased $11,000 to $161,000 for the three
months ended March 31, 1998 compared to $172,000 for the same period in 1997.
The decrease is due to a reduction in OREO expense as well as a reduction in
third party servicing fees. During the first quarter of 1998, DNB converted its
consumer auto loan portfolio to its in-house processing system.
INCOME TAXES
Income tax expense was $250,000 for the three months ended March 31, 1998
and $212,000 for the three months ended March 31, 1997. The rates used for
income taxes for both periods were less than the statutory rate as DNB
recognized certain deferred tax assets relating to the provisions for loan
losses recorded in prior years.
ASSET QUALITY
Non-performing assets are comprised of nonaccrual loans, loans delinquent
over ninety days and still accruing, and Other Real Estate Owned ("OREO").
Nonaccrual loans are loans for which the accrual of interest ceases when the
collection of principal or interest payments is determined to be doubtful by
management. It is the policy of 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). 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.
11
<PAGE>
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) other real estate owned as a result of foreclosure or voluntary
transfer to DNB.
[CAPTION]
<TABLE>
March 31 Dec. 31 March 31
(Dollars in thousands) 1998 1997 1997
---- ---- ----
<S> <C> <C> <C>
Nonaccrual Loans:
Residential mortgage ........................ $ 259 $ 676 $ 863
Commercial mortgage ......................... 920 1,301 1,158
Commercial .................................. 923 821 630
Consumer .................................... 100 107 141
----- ----- -----
Total nonaccrual loans ........................... 2,202 2,905 2,792
Consumer loans 90 days past due and still accruing 161 70 22
-- ----- ----- -----
Total non-performing loans ....................... 2,363 2,975 2,814
Other real estate owned .......................... 402 231 1,010
----- ----- -----
Total non-performing assets ...................... $2,675 $3,206 $3,824
===== ===== =====
</TABLE>
ASSET QUALITY RATIOS:
<TABLE>
<CAPTION>
March 31 Dec. 31 March 31
1998 1997 1997
---- ---- ----
<S> <C> <C> <C>
Non-performing Loans/Total Loans ...................... 1.8% 2.3% 2.2%
Non-performing Assets/Total Loans and OREO ............ 2.1 2.5 3.0
Allowance for Loan & Lease Losses/Total Loans ......... 3.9 4.1 4.0
Allowance for Loan & Lease Losses/Total Loans and OREO 3.8 4.0 4.0
Allowance for Loan & Lease Losses/Non-performing Assets 184.5 164.7 134.5
Allowance for Loan & Lease Losses/Non-performing Loans 215.8 177.5 182.8
</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) 3/31/98 12/31/97 3/31/97
------- -------- -------
<S> <C> <C> <C>
Interest income which would have been recorded
under original terms ......................... $45 $243 $58
Interest income recorded during the period .......... (23) (71) (6)
--- --- ---
Net impact on interest income ....................... $22 $172 $52
=== === ===
</TABLE>
12
<PAGE>
As of March 31, 1998, DNB had impaired loans with a total recorded
investment of $1.7 million and an average recorded investment for the three
month period ended March 31, 1998 of $1.7 million. As of March 31, 1998, there
were no impaired loans for which a related allowance for credit losses is
necessary. Total cash collected on impaired loans was credited to the
outstanding principal balance in the amount of $31,000 during the three months
ended March 31, 1998. No interest income was recorded on such loans.
As of December 31, 1997, DNB had impaired loans with a total recorded
investment of $1.8 million and an average recorded investment for the year ended
December 31, 1996 of $1.6 million. As of December 31, 1997, there were no
impaired loans for which a related allowance for credit losses is necessary.
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.
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, 1998 DNB has $7.6 million in commitments to fund commercial
real estate, construction and land development. In addition, DNB had commitments
to fund $1.4 million in home equity lines of credit and $16.0 million in other
unused commitments. Management anticipates the majority of these commitments
will be funded by means of normal cash flows. In addition, $47.4 million of
certificates of deposit at DNB are scheduled to mature during the nine months
ending December 31, 1998. Management believes that the majority of such deposits
will be reinvested with DNB.
Stockholders' equity increased to $18.8 million at March 31, 1998 as a
result of the $651,000 net income reported for the three months then ended and
after dividends paid totaling approximately $174,000. 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 1998 regulatory
required minimums. The following table summarizes data and ratios pertaining to
the Bank's capital structure.
<TABLE>
<CAPTION>
(Dollars in thousands) March 31, 1998
--------------
<S> <C>
Tier I Capital ........................................ $18,815
Tier II Capital ....................................... 1,891
-------
Total Capital ......................................... $20,706
=======
</TABLE>
<TABLE>
<CAPTION>
Required Current Excess
-------- ------- ------
<S> <C> <C> <C>
Leverage ........................ 4.00% 8.55% 4.55%
Tier I .......................... 4.00 12.71 8.71
Risk-based ...................... 8.00 13.99 5.99
</TABLE>
13
<PAGE>
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
10.3%, 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.
14
<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 21, 1998, the stockholders
voted as follows:
A. Election of Class "C" Directors:
Joseph G. Riper
For: 1,061,816 Against: 44,823 Abstain: --
William S. Latoff
For: 1,070,055 Against: 36,584 Abstain: --
B. Amendments to Articles of Incorporation to increase the authorized
shares of Common Stock from 5 million shares to 10 million shares
and to decrease the par value of the Corporation's Common Stock from
$10.00 per share to $1.00 per share.
For: 904,724 Against: 86,687 Abstain: 115,228
C. Ratification of appointment of KPMG Peat Marwick LLP as independent
auditors of the Corporation, for the fiscal year ending December 31,
1998:
For: 1,085,300 Against: 19,790 Abstain: 2,209
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6.
(a) EXHIBITS:
Not Applicable
(b) REPORTS ON FORM 8-K
Not Applicable
15
<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 8, 1998 /S/ Henry F. Thorne
-------------------
Henry F. Thorne, President
and Chief Executive Officer
DATE: May 8, 1998 /S/ Bruce E. Moroney
--------------------
Bruce E. Moroney
Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<CIK> 0000713671
<NAME> DNB FINANCIAL CORPORATION
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-END> MAR-31-1998 MAR-31-1997 MAR-31-1996
<CASH> 6,760,953 7,295,806 6,276,383
<INT-BEARING-DEPOSITS> 1,268,083 519,228 1,730,000
<FED-FUNDS-SOLD> 17,752,000 0 12,659,000
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 15,157,895 20,477,627 13,885,184
<INVESTMENTS-CARRYING> 50,556,906 45,280,368 36,099,234
<INVESTMENTS-MARKET> 50,703,310 45,151,652 36,234,853
<LOANS> 131,851,408 127,607,907 117,026,034
<ALLOWANCE> 5,100,434 5,144,298 5,521,031
<TOTAL-ASSETS> 226,338,429 204,844,610 190,732,629
<DEPOSITS> 200,852,433 178,913,065 167,726,606
<SHORT-TERM> 0 7,851,146 7,078,776
<LIABILITIES-OTHER> 1,668,071 1,426,481 1,296,059
<LONG-TERM> 5,000,000 0 0
0 0 0
0 0 0
<COMMON> 14,519,610 6,914,220 6,587,930
<OTHER-SE> 4,298,315 9,826,243 8,043,258
<TOTAL-LIABILITIES-AND-EQUITY> 226,338,429 204,844,610 190,732,629
<INTEREST-LOAN> 2,862,993 2,726,103 2,649,180
<INTEREST-INVEST> 1,119,693 1,168,411 883,153
<INTEREST-OTHER> 180,981 34,101 102,549
<INTEREST-TOTAL> 4,163,667 3,928,615 3,634,882
<INTEREST-DEPOSIT> 1,807,991 1,518,381 1,468,855
<INTEREST-EXPENSE> 1,846,834 1,635,202 1,562,932
<INTEREST-INCOME-NET> 2,316,833 2,293,413 2,071,950
<LOAN-LOSSES> 0 0 0
<SECURITIES-GAINS> 0 0 0
<EXPENSE-OTHER> 1,754,121 1,684,127 1,708,294
<INCOME-PRETAX> 901,006 852,331 556,693
<INCOME-PRE-EXTRAORDINARY> 651,006 640,331 453,693
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 651,006 640,331 453,693
<EPS-PRIMARY> .45 .44 .31
<EPS-DILUTED> .43 .44 .31
<YIELD-ACTUAL> 7.96 8.17 8.15
<LOANS-NON> 2,201,820 2,791,514 4,106,667
<LOANS-PAST> 161,203 22,411 70,020
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 7,461,000 6,594,000 9,408,000
<ALLOWANCE-OPEN> 5,280,958 5,112,486 5,514,600
<CHARGE-OFFS> 187,647 883 9,525
<RECOVERIES> 7,123 32,695 15,956
<ALLOWANCE-CLOSE> 5,100,434 5,144,298 5,521,031
<ALLOWANCE-DOMESTIC> 5,100,434 5,144,298 5,521,031
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
