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, 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
May 15, 2000)
- ------------------------------------------------------------------------
<PAGE>
DNB FINANCIAL CORPORATION AND SUBSIDIARY
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
ITEM 1. FINANCIAL STATEMENTS (Unaudited):
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 2000 and December 31, 1999 3
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2000 and 1999 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2000 and 1999 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and December 31, 1999 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 2. CHANGE IN SECURITIES 17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF 17
SECURITY HOLDERS
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(Dollars in thousands, except share amounts)
- ---------------------------------------------------------------------------------------------------------
March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks ...................................... $ 8,044 $ 11,226
Federal funds sold ........................................... 1,914 6,304
----------- -----------
Cash and cash equivalents .................................... 9,958 17,530
Investment securities available for sale, at market value..... 74,366 62,988
Investment securities (market value $42,052
in 2000 and $39,869 in 1999) .............................. 43,067 40,683
Loans, net of unearned income ................................ 172,230 171,456
Allowance for loan losses ................................. (5,058) (5,085)
----------- -----------
Net loans .................................................... 167,172 166,371
----------- -----------
Office property and equipment ................................ 5,716 5,776
Accrued interest receivable .................................. 2,070 1,804
Other real estate owned ...................................... 183 83
Deferred income taxes ........................................ 1,831 2,002
Other assets ................................................. 4,395 4,112
----------- -----------
TOTAL ASSETS ................................................ $ 308,758 $ 301,349
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Non-interest-bearing deposits ................................ $ 33,157 $ 31,864
Interest-bearing deposits:
NOW ....................................................... 40,652 39,501
Money market .............................................. 46,732 47,517
Savings ................................................... 31,190 30,199
Time ...................................................... 111,153 105,800
---------- -----------
TOTAL DEPOSITS ............................................... 262,884 254,881
----------- -----------
Federal Home Loan Bank advances & other borrowings............ 22,745 23,746
Accrued interest payable ................................... 1,234 1,078
Other liabilities ............................................ 501 1,106
----------- -----------
TOTAL LIABILITIES ............................................ 287,364 280,811
----------- -----------
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 ............................................ 2,903 2,429
Accumulated other comprehensive loss ......................... (1,690) (2,055)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ................................... 21,394 20,538
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................... $ 308,758 $ 301,349
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except per share amounts)
- ---------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31
---------------------------
2000 1999
------ ------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans .......................... $3,565 $3,125
Interest on investment securities:
Taxable .......................................... 1,709 1,424
Exempt from Federal taxes ........................ 114 104
Interest on Federal funds sold ...................... 67 44
------ ------
Total interest income ............................... 5,455 4,697
------ ------
INTEREST EXPENSE:
Interest on time deposits ........................... 1,475 1,299
Interest on NOW, money market and savings ........... 927 692
Interest on FHLB advances ........................... 293 229
Interest on other borrowings ........................ 26 --
------ ------
Total interest expense .............................. 2,721 2,220
------ ------
NET INTEREST INCOME ................................. 2,734 2,477
PROVISION FOR LOAN LOSSES ........................... -- --
------ ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES . 2,734 2,477
------ ------
NON-INTEREST INCOME:
Service charges ..................................... 166 130
Trust income ........................................ 124 82
Other ............................................... 103 155
------ ------
Total non-interest income ........................... 393 367
------ ------
NON-INTEREST EXPENSE:
Salaries and employee benefits ...................... 1,162 1,023
Furniture and equipment ............................. 258 213
Occupancy ........................................... 151 122
Professional and consulting ......................... 113 96
Printing and supplies .............................. 61 64
Advertising and marketing ........................... 83 88
Other ............................................... 322 320
------ ------
Total non-interest expense .......................... 2,150 1,926
------ ------
INCOME BEFORE INCOME TAXES .......................... 977 918
INCOME TAX EXPENSE .................................. 293 291
------ ------
NET INCOME .......................................... $ 684 $ 627
====== ======
EARNINGS PER SHARE:
Basic ............................................ $ 0.42 $ 0.39
Diluted .......................................... 0.42 0.38
CASH DIVIDENDS PER SHARE ............................ 0.13 0.12
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic ............................................... 1,610,829 1,600,543
Diluted ............................................. 1,627,245 1,644,327
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31
---------------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................. $ 684 $ 627
Adjustments to reconcile net income to net cash provided.....
by operating activities:
Depreciation, amortization and accretion, net ............... 189 178
Gain on sale of OREO ........................................ -- (46)
Increase in interest receivable ............................. (266) (122)
Increase in other assets .................................... (283) (1,107)
Increase in interest payable ................................ 156 35
Increase in current taxes payable ........................... 293 234
(Decrease) increase in other liabilities .................... (897) 240
------- -------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES ............ (124) 39
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities & paydowns of AFS securities ....... 926 1,059
Proceeds from maturities & paydowns of HTM securities ....... 2,147 1,503
Purchase of AFS securities .................................. (11,766) (4,606)
Purchase of HTM securities .................................. (4,542) (1,000)
Net increase in loans ....................................... (900) (5,093)
Proceeds from sale of OREO .................................. -- 101
Purchase of bank property and equipment ..................... (121) (146)
------- -------
Net Cash Used By Investing Activities ....................... (14,256) (8,182)
------- -------
Cash Flows From Financing Activities:
Net increase in deposits .................................... 8,003 10,473
Decrease in FHLB advances ................................... (1,000) --
Decrease in lease obligations ............................... (1) --
Proceeds from exercise of stock options..... ................ 16 --
Dividends paid .............................................. (209) (198)
------- -------
Net Cash Provided By Financing Activities ................... 6,809 10,275
------- -------
Net Change in Cash and Cash Equivalents ..................... (7,571) 2,132
Cash and Cash Equivalents at Beginning of Period ............ 17,529 19,831
------- -------
Cash and Cash Equivalents at End of Period .................. $ 9,958 $21,963
======= =======
Supplemental Disclosure Of Cash Flow Information:
Cash paid during the period for:
Interest .................................................... $ 2,565 $ 2,184
Taxes ....................................................... -- 51
Supplemental Disclosure Of Non-Cash Flow Information:
Transfer of loans to OREO ................................... $ 99 $ 108
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
DNB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 year classifications. The
results of operations for the three months ended March 31, 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
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 1999.
For the three months ended March 31, 2000, 131,187 shares were not included
because such options were antidilutive. These shares may be dilutive in the
future. Net income and weighted average number of shares outstanding for basic
and diluted EPS for the three months ended March 31, 2000 and 1999 are
reconciled as follows:
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
March 31
2000 1999
--------------------------------------------------------------
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to common stockholders .... $ 684 1,611 $0.42 $ 627 1,600 $0.39
Effect of dilutive common stock equivalents-
stock options ......................... -- 16 -- -- 44 0.01
----- ----- ----- ----- ----- -----
Diluted EPS ................................ $ 684 1,627 $0.42 $ 627 1,644 $0.38
===== ===== ===== ===== ===== =====
</TABLE>
<PAGE>
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. DNB's comprehensive income for the three months ended March 31, 2000
and 1999 was $1,048,534 and $265,049 and consisted of net income and the change
in unrealized gains or losses on investment securities available for sale.
<TABLE>
<CAPTION>
For the three months
ended March 31
-----------------------
2000 1999
------- -------
<S> <C> <C>
Net income ........................................ $ 684 $ 627
Other comprehensive income (loss), net of tax:
relating to unrealized gains (losses) on investments 365 (362)
------- -------
Comprehensive income .............................. $1,049 $ 265
======= =======
</TABLE>
NOTE 4: RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which was subsequently amended, ("SFAS No.
133"). 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.
<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 $308.8 million at March 31, 2000 compared to $301.3
million at December 31, 1999. Total loans, net of unearned income, increased
$800,000 or 0.45% to $172.2 million from $171.5 million at December 31, 1999.
Total investment securities (AFS and HTM) increased $13.7 million or 6% to
$117.4 million from $103.7 million at December 31, 1999, while Federal funds
sold decreased $4.4 million to $1.9 million at March 31, 2000.
Deposits at March 31, 2000 totaled $262.9 million, compared to $254.9
million at December 31, 1999, an increase of $8 million or 3.1%. $5 million of
the increase was attributable to a recent certificate of deposit promotion.
Total borrowings at March 31, 2000 were $22.7 million.
At March 31, 2000, total stockholders' equity was $21.4 million or $13.28
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 $684,000
for the three months ended March 31, 2000, a change in the fair market value of
available-for-sale investment securities, as well as options exercised, offset
by dividends paid of approximately $209,000 or $.13 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 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 the
interest cost for deposits, Federal funds purchased, Federal Home Loan Bank
advances, and other borrowings.
Net interest income on a taxable equivalent basis, increased $266,000 or
10% to $2.8 million for the three month period ended March 31, 2000 from the
respective period in 1999. As shown in the following table, the increase in net
interest income for the three month period ended March 31, 2000 was attributable
to the positive effects of volume changes due largely to increased loans and
investments, offset by increases in average deposits and borrowings. There was
no overall impact from rate changes as positive changes in rates from interest
earning assets were completely offset by rate changes in deposits and
borrowings.
<PAGE>
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, 2000 compared to the
three months ended March 31, 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.
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000
(Dollars in thousands) Compared to 1999
-----------------------------------------
Increase (Decrease) Due to
-------------------------------------
Rate Volume Total
------ ------ ------
<S> <C> <C> <C>
Interest-earning assets:
Loans .............................................. $ 2 $ 438 $ 440
Investment securities-taxable ...................... 126 159 285
Investment securities-tax-exempt.................... 6 14 20
Federal funds sold ................................. 14 9 23
----- ---- ----
Total ......................................... 148 620 768
----- ---- ----
Interest-bearing liabilities:
Time deposits ...................................... 30 147 177
Savings deposits ................................... 95 140 235
Other borrowings ................................... 23 67 90
----- ----- -----
Total .......................................... 148 354 502
----- ----- -----
Net Interest Income ................................ $ -- $ 266 $ 266
===== ===== =====
</TABLE>
PROVISION FOR LOAN LOSSES
To provide for known and 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. There were no
provisions made during the three months ended March 31, 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 $27,000 for the three months ended March 31, 2000,
compared to net loan charge-offs of $120,000 for the year ended December 31,
1999 and net loan recoveries of $21,000 for the three months ended March 31,
1999. The percentage of net (charge-offs)/recoveries to total average loans was
(.02%), (.07%) and .01% for the same periods, respectively. Another measure of
the adequacy of the allowance is the coverage ratio of the allowance to
non-performing loans, which was 282% at March 31, 2000. In addition, the ratio
of non-performing loans to total loans has steadily declined and was 1.04% at
March 31, 2000.
<PAGE>
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.
<TABLE>
<CAPTION>
3 Months Year 3 Months
Ended Ended Ended
(Dollars in thousands) 3/31/00 12/31/99 3/31/99
------- -------- -------
<S> <C> <C> <C>
Beginning Balance .................... $ 5,085 $ 5,205 $ 5,205
Provisions ........................... -- -- --
Loans charged off:
Real estate ................... -- (171) --
Commercial .................... (35) (35) --
Consumer ...................... (7) (10) (4)
------- ------- -------
Total charged off.......... (42) (216) (4)
------- ------- -------
Recoveries:
Real estate ................... 1 21 --
Commercial .................... 9 68 1
Consumer ...................... 5 7 24
Total recoveries ..................... 15 96 25
------- ------- -------
Net (charge-offs) recoveries.......... (27) (120) 21
------- ------- -------
Ending Balance ....................... $ 5,058 $ 5,085 $ 5,226
======= ======= =======
</TABLE>
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 and merchant
services, safe deposit box rentals, issuing travelers' checks and money orders,
check cashing, lock box services and similar activities.
For the three month period ended March 31, 2000, non-interest income was
$393,000, compared to $367,000 for the same three month period in 1999. The
improvement in non-interest income can be attributed to significant increases in
trust income and service charge income, largely offset by a reduction in other
income, reflecting gains on sale of OREO of $46,000 during the three month
period ended March 31, 1999.
<PAGE>
Service charge income for the three months ended March 31, 2000 was
$166,000 compared to $130,000 for the same period in 1999. NSF fees and cycle
charges increased due to an increase in the volume of such accounts. Business
analysis charges increased due to a new fee schedule introduced in the second
quarter of 1999.
Trust income for the three months ended March 31, 2000 was $124,000
compared to $82,000 for the same period in 1999. The increase in Trust income
was due primarily to a higher number of estate commissions in the first quarter
of 2000.
Other non-interest income decreased $52,000 or 33% to $103,000 for the
three months ended March 31, 2000, from $155,000 for the same period in 1999.
Gains on sale of OREO properties totaled $46,000 in 1999 and there were no OREO
sales during the first quarter of 2000.
NON-INTEREST EXPENSE
Non-interest expense includes salaries & employee benefits, furniture &
equipment, occupancy, professional & consulting fees as well as advertising &
marketing, printing & supplies, and other less significant expense items.
Overall, non-interest expenses increased $224,000 for the three months
ended March 31, 2000, compared to the same period in 1999. The significant
increase for the three month period reflects DNB's branch expansion into two new
markets during the second quarter of 1999 as well as DNB's investment in
technology in preparation for future on-line and e-banking products.
Salaries & employee benefits increased $139,000 or 14% to $1,162,000 for
the three months ended March 31, 2000 compared to $1,024,000 for the same period
in 1999. The increase in this category reflects more full-time equivalent
employees in 2000 as well as merit increases, partially offset by lower
hospitalization premium expense incurred during the first quarter of 2000.
Furniture & equipment and occupancy expense increased $45,000 and $29,000,
respectively, for the three months ended March 31, 2000, compared to the same
period in 1999. The increase in these expenses was caused by higher levels of
depreciation and maintenance costs related to the Bank's two new branches that
were not in operation during the first quarter of 1999.
Professional & consulting expenses increased $17,000 to $113,000, for the
three months ended March 31, 2000 compared to $96,000 for the same period in
1999. The majority of this increase is attributable to systems administration
costs for the Bank's wide area network.
<PAGE>
INCOME TAXES
Income tax expense was $293,000 for the three months ended March 31, 2000
and $291,000 for the three months ended March 31, 1999. The rates used for
income taxes for both periods were less than the statutory rate due to levels 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). 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) 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.
<TABLE>
<CAPTION>
March 31 Dec. 31 March 31
(Dollars in thousands) 2000 1999 1999
-------- ------- --------
<S> <C> <C> <C>
Nonaccrual Loans:
Residential mortgage ........................ $ 201 $ -- $ 219
Commercial mortgage ......................... 125 361 954
Commercial .................................. 482 674 927
Consumer .................................... 325 292 126
------ ------ ------
Total nonaccrual loans ........................... 1,133 1,327 2,226
------ ------ ------
Loans 90 days past due and still accruing......... 660 694 693
-- ------ ------ ------
Total non-performing loans ....................... 1,793 2,021 2,919
Other real estate owned .......................... 183 83 192
------ ------ ------
Total non-performing assets ...................... $1,976 $2,104 $3,111
====== ====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
March 31 Dec. 31 March 31
2000 1999 1999
-------- ------- --------
<S> <C> <C> <C>
Asset quality ratios:
Non-performing Loans/Total Loans ........................... 1.1% 1.2% 1.9%
Non-performing Assets/Total Loans and OREO ................. 1.2 1.2 2.0
Allowance for Loan & Lease Losses/Total Loans .............. 3.0 3.0 3.4
Allowance for Loan & Lease Losses/Total Loans and OREO...... 3.0 3.0 3.4
Allowance for Loan & Lease Losses/Non-performing Assets..... 256.0 241.7 168.0
Allowance for Loan & Lease Losses/Non-performing Loans...... 282.1 251.6 179.0
</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) 3/31/00 12/31/99 3/31/99
-------- -------- --------
<S> <C> <C> <C>
Interest income which would have been recorded
under original terms................................ $ 23 $ 105 $ 43
Interest income recorded during the period ............... -- (21) (2)
----- ----- -----
Net impact on interest income ............................ $ 23 $ 84 $ 41
===== ===== =====
</TABLE>
As of March 31, 2000, DNB had impaired loans with a total recorded
investment of $479,000 and an average recorded investment for the three month
period ended March 31, 2000 of $806,000. As of March 31, 2000, 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 $14,000 during the three months ended March 31, 2000.
No interest income was recorded on such loans.
As of December 31, 1999, DNB had impaired loans with a total recorded
investment of $715,000 and an average recorded investment for the year ended
December 31, 1999 of $1.0 million. As of December 31, 1999, there were no
impaired loans for which a related allowance for credit losses was necessary.
Total cash collected on impaired loans was credited to the outstanding principal
balance in the amount of $113,000 during the three months ended March 31,1999.
No interest income was recorded on such loans.
<PAGE>
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, 2000 DNB had $9.9 million in commitments to fund commercial
real estate, construction and land development. In addition, DNB had commitments
to fund $3.2 million in home equity lines of credit and $11.4 million in other
unused commitments. Management anticipates the majority of these commitments
will be funded by means of normal cash flows. In addition, $64.7 million of
certificates of deposit at DNB are scheduled to mature during the nine months
ending December 31, 2000. Management believes that the majority of such deposits
will be reinvested with DNB.
Stockholders' equity increased to $21.4 million at March 31, 2000 as a
result of the $684,000 profit reported for the three months then ended and after
dividends paid totaling approximately $209,000. 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 regulatory required
minimums. The following table summarizes data and ratios pertaining to the
Bank's capital structure.
<TABLE>
<CAPTION>
(Dollars in thousands) March 31, 2000
--------------
<S> <C>
Tier I Capital............................................ $22,393
Tier II Capital........................................... 2,673
-------
Total Capital ............................................ $25,066
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Required Current Excess
-------- ------- ------
<S> <C> <C> <C>
Leverage .................................................... 4.00% 7.39% 3.39%
Tier I ...................................................... 4.00 10.59 6.59
Risk-based................................................... 8.00 11.86 3.86
</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 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 9.0%, 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 March 31, 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.
<PAGE>
<TABLE>
<CAPTION>
March 31, 2000
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Change in Rates ................... Flat -200bp +200bp
-------- -------- --------
Economic Value of
Portfolio Equity ............. $ 30,176 $ 34,229 $ 22,270
Change ............................ 4,053 (7,906)
Change as a % of assets ........... 1.31% (2.56%)
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Change in Rates ................... Flat -200bp +200bp
------- ------- -------
Economic Value of
Portfolio Equity ............. 28,232 33,060 20,351
Change ............................ 4,828 (7,881)
Change as a % of assets ........... 1.60% (2.62%)
</TABLE>
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) the impact of the Year 2000 issue may be more significant than currently
anticipated; (6) unexpected contingencies relating to Year 2000 compliance; and
(7) 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.
<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 25, 2000, the
stockholders voted as follows:
A. Election of Class "B" Directors: Robert J. Charles
For: 1,174,975 Against: 94,896 Abstain: -0-
Vernon J. Jameson
For: 1,213,418 Against: 56,453 Abstain: -0-
Henry F. Thorne
For: 1,212,410 Against: 57,461 Abstain: -0-
B. Ratification of appointment of KPMG LLP as independent auditors of
the Corporation, for the fiscal year ending December 31, 2000:
For: 1,260,521 Against: 4,826 Abstain: 4,524
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 15, 2000 /S/ Henry F. Thorne
---------------------------
Henry F. Thorne, President
and Chief Executive Officer
DATE: May 15, 2000 /S/ Bruce E. Moroney
---------------------------
Bruce E. Moroney
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000713671
<NAME> DNB FINANCIAL CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 8,044,471
<INT-BEARING-DEPOSITS> 545,450
<FED-FUNDS-SOLD> 1,914,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 74,365,704
<INVESTMENTS-CARRYING> 43,066,999
<INVESTMENTS-MARKET> 42,052,156
<LOANS> 172,230,035
<ALLOWANCE> 5,058,017
<TOTAL-ASSETS> 308,758,420
<DEPOSITS> 262,883,843
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,735,659
<LONG-TERM> 22,745,211
0
0
<COMMON> 1,611,339
<OTHER-SE> 19,782,365
<TOTAL-LIABILITIES-AND-EQUITY> 308,758,420
<INTEREST-LOAN> 3,565,043
<INTEREST-INVEST> 1,822,767
<INTEREST-OTHER> 67,447
<INTEREST-TOTAL> 5,455,257
<INTEREST-DEPOSIT> 2,402,620
<INTEREST-EXPENSE> 2,721,629
<INTEREST-INCOME-NET> 2,733,628
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,149,935
<INCOME-PRETAX> 976,816
<INCOME-PRE-EXTRAORDINARY> 683,816
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 683,816
<EPS-BASIC> .42
<EPS-DILUTED> .42
<YIELD-ACTUAL> 7.65
<LOANS-NON> 1,133,490
<LOANS-PAST> 660,359
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 8,118,000
<ALLOWANCE-OPEN> 5,085,078
<CHARGE-OFFS> 41,715
<RECOVERIES> 14,654
<ALLOWANCE-CLOSE> 5,058,017
<ALLOWANCE-DOMESTIC> 5,058,017
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
