Company Quick10K Filing
Quick10K
DNB Financial
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$39.23 4 $170
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-05 Enter Agreement, Officers, Amend Bylaw, Other Events, Exhibits
8-K 2019-05-22 Other Events, Exhibits
8-K 2019-04-24 Shareholder Vote
8-K 2019-04-23 Earnings, Other Events, Exhibits
8-K 2019-01-24 Earnings, Other Events, Exhibits
8-K 2019-01-24 Earnings, Other Events, Exhibits
8-K 2018-11-15 Other Events, Exhibits
8-K 2018-10-24 Earnings, Other Events, Exhibits
8-K 2018-08-22 Other Events, Exhibits
8-K 2018-08-07 Regulation FD, Exhibits
8-K 2018-07-24 Earnings, Other Events, Exhibits
8-K 2018-06-06 Officers, Regulation FD, Exhibits
8-K 2018-05-23 Other Events, Exhibits
8-K 2018-04-26 Shareholder Vote
8-K 2018-04-24 Earnings, Other Events, Exhibits
8-K 2018-03-01 Other Events, Exhibits
8-K 2018-01-29 Officers, Other Events, Exhibits
8-K 2018-01-26 Enter Agreement, Officers, Exhibits
8-K 2018-01-24 Earnings, Other Events, Exhibits
8-K 2018-01-09 Officers, Other Events
GS Goldman Sachs 73,760
IRBT Irobot 2,710
SBLK Star Bulk Carriers 732
CCXI Chemocentryx 709
TOPS Top Ships 17
HEB Hemispherx Biopharma 11
WFE Wells Fargo Real Estate Investment 0
ENGT Energy & Technology 0
TLSRP Telos 0
BBLS Petrolia Energy 0
DNBF 2019-03-31
Part I – Financial Information
Item 1 – Financial Statements
Note 1: Basis of Presentation
Note 2: Investment Securities
Note 3: Loans
Note 4: Allowance for Credit Losses
Note 5: Earnings per Share
Note 6: Accumulated Other Comprehensive Loss
Note 7: Subordinated Debentures and Notes
Note 8: Stock-Based Compensation
Note 9: Income Taxes
Note 10: Fair Value
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Item 4 - Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 dnbf-20190331xex31_1.htm
EX-31.2 dnbf-20190331xex31_2.htm
EX-32.1 dnbf-20190331xex32_1.htm
EX-32.2 dnbf-20190331xex32_2.htm

DNB Financial Earnings 2019-03-31

DNBF 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 dnbf-20190331x10q.htm 10-Q 20190331 Q1

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, D.C. 20549

________________________________________



FORM 10-Q



[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.



For the quarterly period ended: March 31, 2019

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: 1-34242

DNB Financial Corporation

(Exact name of registrant as specified in its charter)

Pennsylvania                                       23-2222567

 

 

 

 

 



 

Pennsylvania

(State or other jurisdiction of

incorporation or organization)

23-2222567

(I.R.S. Employer Identification No.)

4 Brandywine Avenue - Downingtown, PA 19335

(Address of principal executive offices and Zip Code)



(610) 269-1040

(Registrant's telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:





 

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock ($1.00 Par Value)

DNBF

The NASDAQ Stock Market LLC



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

   



 

 

Yes

 

No



Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 





 

 

Yes

 

No



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.





 

 

 

 

 

Large accelerated filer

  

Accelerated filer

  

Non-accelerated filer    

 

Smaller reporting company

 

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



 

 

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)

(Class)

 

4,331,121 (Shares Outstanding as of May 6, 2019) 




 

 

DNB FINANCIAL CORPORATION AND SUBSIDIARY





INDEX



                                                                



 

 

 

 

 



 

PART  I - FINANCIAL INFORMATION

PAGE NO.



 

 

 

ITEM 1.      

 

FINANCIAL STATEMENTS (Unaudited):

 



 

 

 



 

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

 



 

March 31, 2019 and December 31, 2018



 

 

 



 

CONSOLIDATED STATEMENTS OF INCOME

 



 

Three Months Ended March 31, 2019 and 2018



 

 

 



 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 



 

Three Months Ended March 31, 2019 and 2018



 

 

 



 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY



 

Three Months Ended March 31, 2019 and 2018

 



 

 

 



 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 



 

Three Months Ended March 31, 2019 and 2018



 

 

 



 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



 

 

 

ITEM 2. 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

30 



 

 

 



 

 

 

ITEM 3.      

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

45 



 

 

 

ITEM 4.      

 

CONTROLS AND PROCEDURES

45 



 

 

 



 

PART II - OTHER INFORMATION

 



 

 

 

ITEM 1.

 

LEGAL PROCEEDINGS

45 



 

 

 

ITEM 1A.

 

RISK FACTORS

45 



 

 

 

ITEM 2.      

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

45 



 

 

 

ITEM 3.      

 

DEFAULTS UPON SENIOR SECURITIES

46 



 

 

 

ITEM 4.      

 

MINE SAFETY DISCLOSURES

46 



 

 

 

ITEM 5.      

 

OTHER INFORMATION

46 



 

 

 

ITEM 6.      

 

EXHIBITS

46 



 

 

 

SIGNATURES

47 



 

 

 

EXHIBIT INDEX

48 



 

 

 



 

2

 


 

 





PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

DNB Financial Corporation and Subsidiary

Consolidated Statements of Financial Condition (Unaudited)







 

 

 

 

 



 

 

 

 

 



March 31,

 

December 31,

(Dollars in thousands, except share and per share data)

2019

 

2018

Assets

 

 

 

 

 

Cash and due from banks

$

34,893 

 

$

17,321 

Cash and cash equivalents

 

34,893 

 

 

17,321 

Available-for-sale investment securities at fair value (amortized cost of $88,434 and $98,765)

 

87,122 

 

 

96,643 

Held-to-maturity investment securities (fair value of $60,906 and $61,135)

 

61,000 

 

 

62,026 

Total investment securities

 

148,122 

 

 

158,669 

Loans held for sale

 

449 

 

 

419 

Loans

 

933,697 

 

 

934,971 

Allowance for credit losses

 

(6,719)

 

 

(6,675)

Net loans

 

926,978 

 

 

928,296 

Restricted stock

 

6,389 

 

 

5,616 

Office property and equipment, net

 

7,360 

 

 

7,636 

Operating lease right-of-use asset

 

3,976 

 

 

 -

Accrued interest receivable

 

4,396 

 

 

4,207 

Other real estate owned & other repossessed property

 

3,466 

 

 

5,051 

Bank owned life insurance (BOLI)

 

9,582 

 

 

9,530 

Core deposit intangible

 

322 

 

 

343 

Goodwill

 

15,525 

 

 

15,525 

Net deferred taxes

 

2,407 

 

 

2,762 

Other assets

 

2,829 

 

 

2,860 

Total assets 

$

1,166,694 

 

$

1,158,235 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Liabilities

 

 

 

 

 

Non-interest-bearing deposits

$

166,806 

 

$

164,746 

Interest-bearing deposits:

 

 

 

 

 

NOW

 

233,077 

 

 

236,071 

Money market

 

231,524 

 

 

235,023 

Savings

 

78,748 

 

 

77,979 

Time

 

162,939 

 

 

162,096 

Brokered deposits

 

107,163 

 

 

108,651 

Total deposits 

 

980,257 

 

 

984,566 

Federal Home Loan Bank of Pittsburgh (FHLBP) advances

 

41,918 

 

 

32,935 

Junior subordinated debentures

 

9,279 

 

 

9,279 

Subordinated debt

 

9,750 

 

 

9,750 

Other borrowings

 

289 

 

 

3,305 

Total borrowings

 

61,236 

 

 

55,269 

Accrued interest payable

 

699 

 

 

646 

Other liabilities

 

5,158 

 

 

5,908 

Operating lease liability

 

4,358 

 

 

 -

Total liabilities 

 

1,051,708 

 

 

1,046,389 

Stockholders’ Equity

 

 

 

 

 

Common stock, $1.00 par value;

 

 

 

 

 

20,000,000 shares authorized; 4,381,872 and 4,381,872 issued, respectively; 4,327,415 and 4,321,745 outstanding, respectively

 

4,382 

 

 

4,391 

Treasury stock, at cost; 54,457 and 60,127 shares, respectively

 

(1,027)

 

 

(1,130)

Surplus

 

69,454 

 

 

69,333 

Retained earnings

 

44,507 

 

 

42,223 

Accumulated other comprehensive loss

 

(2,330)

 

 

(2,971)

Total stockholders’ equity 

 

114,986 

 

 

111,846 

Total liabilities and stockholders’ equity 

$

1,166,694 

 

$

1,158,235 

See accompanying notes to unaudited consolidated financial statements.

3

 


 

 

DNB Financial Corporation and Subsidiary

Consolidated Statements of Income (Unaudited)

 





 

 

 

 

 

 



Three Months Ended

 



March 31,

 

(Dollars in thousands, except share and per share data)

2019

 

2018

 

Interest Income:

 

 

 

 

 

 

Interest and fees on loans

$

11,290 

 

$

9,882 

 

Interest and dividends on investment securities:

 

 

 

 

 

 

Taxable

 

811 

 

 

793 

 

Exempt from federal taxes

 

216 

 

 

217 

 

Interest on cash and cash equivalents

 

43 

 

 

21 

 

Total interest and dividend income

 

12,360 

 

 

10,913 

 

Interest Expense:

 

 

 

 

 

 

Interest on NOW, money market and savings

 

1,051 

 

 

830 

 

Interest on time deposits

 

828 

 

 

325 

 

Interest on brokered deposits

 

611 

 

 

199 

 

Interest on FHLB advances

 

225 

 

 

301 

 

Interest on repurchase agreements

 

 -

 

 

 

Interest on junior subordinated debentures

 

127 

 

 

105 

 

Interest on subordinated debt

 

104 

 

 

104 

 

Interest on other borrowings

 

16 

 

 

16 

 

Total interest expense

 

2,962 

 

 

1,886 

 

Net interest income

 

9,398 

 

 

9,027 

 

Provision for credit losses

 

200 

 

 

375 

 

Net interest income after provision for credit losses

 

9,198 

 

 

8,652 

 

Non-interest Income:

 

 

 

 

 

 

Service charges

 

291 

 

 

313 

 

Wealth management

 

445 

 

 

435 

 

Mortgage banking

 

74 

 

 

61 

 

Increase in cash surrender value of BOLI

 

52 

 

 

52 

 

Gain on sale of investment securities, net

 

 

 

 -

 

Other fees

 

409 

 

 

412 

 

Total non-interest income

 

1,274 

 

 

1,273 

 

Non-interest Expense:

 

 

 

 

 

 

Salaries and employee benefits

 

3,853 

 

 

3,772 

 

Furniture and equipment

 

541 

 

 

489 

 

Occupancy

 

725 

 

 

697 

 

Professional and consulting

 

577 

 

 

403 

 

Advertising and marketing

 

195 

 

 

182 

 

FDIC insurance

 

114 

 

 

118 

 

PA shares tax

 

260 

 

 

242 

 

Telecommunications

 

88 

 

 

81 

 

Loss on sale or write down of OREO, net

 

113 

 

 

 -

 

Other expenses

 

812 

 

 

746 

 

Total non-interest expense

 

7,278 

 

 

6,730 

 

Income before income tax expense

 

3,194 

 

 

3,195 

 

Income tax expense

 

607 

 

 

582 

 

Net income

$

2,587 

 

$

2,613 

 

Earnings per common share:

 

 

 

 

 

 

Basic

$

0.60 

 

$

0.61 

 

Diluted

$

0.60 

 

$

0.61 

 

Cash dividends per common share

$

0.07 

 

$

0.07 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 Basic

4,327,226 

 

4,290,971 

 

 Diluted

4,329,991 

 

4,308,847 

 

See accompanying notes to unaudited consolidated financial statements.

4

 


 

 

DNB Financial Corporation and Subsidiary

Consolidated Statements of Comprehensive Income (Unaudited)







 

 

 

 

 

 



 

 

 

 

 

 



Three Months Ended

 



March 31,

 

(Dollars in thousands)

2019

 

2018

 

Net income

$

2,587 

 

$

2,613 

 

Other Comprehensive Income (Loss):

 

 

 

 

 

 

Unrealized holding gains (losses) arising during the period

 

 

 

 

 

 

Before tax amount

 

810 

 

 

(1,014)

 

Tax effect

 

(169)

 

 

213 

 

Total other comprehensive income (loss)

 

641 

 

 

(801)

 

Total comprehensive income

$

3,228 

 

$

1,812 

 

See accompanying notes to unaudited consolidated financial statements.



5

 


 

 

DNB Financial Corporation and Subsidiary

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Accumulated

 

 



 

 

 

 

 

 

 

 

Other

 

 



Common

Treasury

 

Retained

Comprehensive

 

 

(Dollars in thousands)

Stock

Stock

Surplus

Earnings

Loss

Total

Balance at January 1, 2019

$

4,391 

$

(1,130)

$

69,333 

$

42,223 

$

(2,971)

$

111,846 

Net income for three months ended March 31, 2019

 

 -

 

 -

 

 -

 

2,587 

 

 -

 

2,587 

Other comprehensive income

 

 -

 

 -

 

 -

 

 -

 

641 

 

641 

Restricted stock compensation expense

 

(9)

 

 -

 

70 

 

 -

 

 -

 

61 

Cash dividends - common ($0.07 per share)

 

 -

 

 -

 

 -

 

(303)

 

 -

 

(303)

Non-cash funding of 401(k) (3,931 shares)

 

 -

 

72 

 

35 

 

 -

 

 -

 

107 

Non-cash funding of deferred comp. plan (1,739 shares)

 

 -

 

31 

 

16 

 

 -

 

 -

 

47 

Balance at March 31, 2019

$

4,382 

$

(1,027)

$

69,454 

$

44,507 

$

(2,330)

$

114,986 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Accumulated

 

 



 

 

 

 

 

 

 

 

Other

 

 



Common

Treasury

 

 

Retained

Comprehensive

 

 

(Dollars in thousands)

Stock

Stock

Surplus

Earnings

Loss

Total

Balance at January 1, 2018

$

4,379 

$

(1,429)

$

69,110 

$

32,272 

$

(2,390)

$

101,942 

Net income for three months ended March 31, 2018

 

 -

 

 -

 

 -

 

2,613 

 

 -

 

2,613 

Other comprehensive loss

 

 -

 

 -

 

 -

 

 -

 

(801)

 

(801)

Restricted stock compensation expense (896 shares vested)

 

 

 -

 

92 

 

 -

 

 -

 

96 

Exercise of stock options (966 shares)

 

 

 -

 

(1)

 

 -

 

 -

 

 -

Shares withheld for employee taxes on stock option exercise and share award vest

 

(1)

 

 -

 

(36)

 

 -

 

 -

 

(37)

Cash dividends - common ($0.07 per share)

 

 -

 

 -

 

 -

 

(300)

 

 -

 

(300)

Non-cash funding of 401(k) (3,230 shares)

 

 -

 

58 

 

50 

 

 -

 

 -

 

108 

Non-cash funding of deferred comp. plan (1,480 shares)

 

 -

 

26 

 

23 

 

 -

 

 -

 

49 

Adoption impact - ASU 2018-02

 

 -

 

 -

 

 -

 

471 

 

(471)

 

 -

Balance at March 31, 2018

$

4,383 

$

(1,345)

$

69,238 

$

34,585 

$

(3,191)

$

103,670 

See accompanying notes to unaudited consolidated financial statements.

6

 


 

 

DNB Financial Corporation and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)







 

 

 

 

 



Three Months Ended March 31,

(Dollars in thousands)

2019

 

2018

Cash Flows From Operating Activities:

 

 

 

 

 

Net income

$

2,587 

 

$

2,613 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation, amortization and accretion

 

350 

 

 

384 

Provision for credit losses

 

200 

 

 

375 

Stock based compensation

 

61 

 

 

96 

Non-cash funding of retirement plans

 

154 

 

 

157 

Net gain on sale of securities

 

(3)

 

 

 -

Net loss on sale or write down of OREO and other repossessed property

 

113 

 

 

 -

Earnings from investment in BOLI

 

(52)

 

 

(52)

Deferred tax expense

 

185 

 

 

214 

Proceeds from sales of mortgage loans

 

3,632 

 

 

3,408 

Mortgage loans originated for sale

 

(3,588)

 

 

(3,342)

Gain on sale of mortgage loans

 

(74)

 

 

(61)

Increase in accrued interest receivable

 

(189)

 

 

(160)

Decrease (increase) in other assets

 

31 

 

 

(271)

Increase (decrease) in accrued interest payable

 

53 

 

 

(60)

(Decrease) increase in other liabilities

 

(750)

 

 

577 

Amortization of operating lease right-of-use asset

 

566 

 

 

 -

Accretion of operating lease liability

 

(184)

 

 

 -

Net Cash Provided by Operating Activities

 

3,092 

 

 

3,878 

Cash Flows From Investing Activities:

 

 

 

 

 

Activity in available-for-sale securities:

 

 

 

 

 

Maturities, repayments and calls

 

21,617 

 

 

1,803 

Purchases

 

(11,346)

 

 

 -

Activity in held-to-maturity securities:

 

 

 

 

 

Maturities, repayments and calls

 

1,063 

 

 

199 

Net (increase) decrease in restricted stock

 

(773)

 

 

278 

Net decrease (increase) in loans

 

614 

 

 

(18,535)

Purchases of property and equipment

 

(26)

 

 

(28)

Purchase of third party ownership in OREO

 

(165)

 

 

 -

Proceeds from sale of OREO and other repossessed property

 

2,141 

 

 

33 

Net Cash Provided By (Used In) Investing Activities

 

13,125 

 

 

(16,250)

Cash Flows From Financing Activities:

 

 

 

 

 

Net (decrease) increase in deposits

 

(4,309)

 

 

30,583 

Repayment of FHLBP advances

 

(56,017)

 

 

(71,020)

Funding of FHLBP advances

 

65,000 

 

 

60,000 

Net decrease in repurchase agreements

 

 -

 

 

(1,306)

Decrease in other borrowings

 

(3,016)

 

 

(2,387)

Dividends paid

 

(303)

 

 

(300)

Payment of employee taxes on stock option exercise and share award vest

 

 -

 

 

(37)

Net Cash Provided by Financing Activities

 

1,355 

 

 

15,533 

Net Change in Cash and Cash Equivalents 

 

17,572 

 

 

3,161 

Cash and Cash Equivalents at Beginning of Period 

 

17,321 

 

 

10,917 

Cash and Cash Equivalents at End of Period 

$

34,893 

 

$

14,078 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

$

2,909 

 

$

1,946 

Supplemental Disclosure of Non-cash Flow Information:

 

 

 

 

 

Transfers from loans to real estate owned and other repossessed property

 

504 

 

 

14 

See accompanying notes to unaudited consolidated financial statements.

7

 


 

 

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, DNB First, National Association (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 amounts not affecting net income are reclassified when necessary to conform to current period classifications. The results of operations for the three months ended March 31, 2019 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, 2018



Subsequent Events-- Management has evaluated events and transactions occurring subsequent to March 31, 2019 for items that should potentially be recognized or disclosed in these Consolidated Financial Statements. The evaluation was conducted through the date these financial statements were issued.



Recent Accounting Pronouncements-  

Accounting Developments Affecting DNB 



In May 2014, the FASB issued ASU No. 2014-09, ‘‘Revenue from Contracts with Customers (Topic 606).’’ The updated standard is a new comprehensive revenue recognition model that requires revenue to be recognized in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 by one year. During 2016 and 2017, the FASB issued ASU Nos. 2016-10, 2016-12, 2016-20, and 2017-13 that provided additional guidance related to the identification of performance obligations within a contract, assessing collectability, contract costs, and other technical corrections and improvements.



DNB adopted the new standards discussed above effective January 1, 2018 using the modified retrospective approach. A significant majority of DNB’s revenues are explicitly excluded from the scope of the new guidance including interest, dividend income, BOLI, gain/loss on sale of loans and investments on the Consolidated Statements of Income. The adoption of ASU 2014-09 did not require a cumulative adjustment to the opening balance of retained earnings as of January 1, 2018 and did not have a material impact on DNB’s Consolidated Statements of Financial Condition, Comprehensive Income, Stockholders’ Equity or Cash Flows for the year ended December 31, 2018. Non-interest income components in the scope of Topic 606 continue to be recognized when DNB’s performance obligations are complete or at the time of sale after a customer’s transaction posts in the account. Disclosures required for DNB’s revenue streams in the scope of ASU 2014-09 are included in Non-Interest Income in the following table.



8

 


 

 

Non-interest Income Non-interest income includes revenue from contracts with customers in the scope of ASU 2014-09 as follows:





 

 

 

 

 

 



Three Months Ended

 



March 31,

 

(Dollars in thousands)

2019

 

2018

 

Non-interest Income:

 

 

 

 

 

 

Service charges:

 

 

 

 

 

 

Non-sufficient funds charges

$

133 

 

$

159 

 

Business analysis charges

 

46 

 

 

41 

 

Cycle charges

 

20 

 

 

23 

 

Lockbox fees

 

47 

 

 

44 

 

Stop payment fees

 

 

 

 

Wire transfer fees

 

22 

 

 

21 

 

Other service charges

 

19 

 

 

21 

 

Total service charges

 

291 

 

 

313 

 

Wealth management:

 

 

 

 

 

 

DNB Investments & Insurance

 

76 

 

 

89 

 

DNB First Investment Management & Trust

 

369 

 

 

346 

 

Total wealth management

 

445 

 

 

435 

 

Other fee income:

 

 

 

 

 

 

Cardholder interchange fees

 

253 

 

 

245 

 

Safe deposit box

 

23 

 

 

24 

 

Check printing

 

24 

 

 

23 

 

Merchant card processing

 

42 

 

 

48 

 

ATM surcharges for non-DNB customers

 

15 

 

 

17 

 

Other fee income

 

14 

 

 

14 

 

Total other fee income

 

371 

 

 

371 

 

Total Revenue from contracts with customers

 

1,107 

 

 

1,119 

 

Total Revenue not within the scope of ASC 606

 

167 

 

 

154 

 

Total non-interest income

$

1,274 

 

$

1,273 

 



Service charges on deposit accounts are recorded monthly when DNB’s performance obligations are complete. Deposit balances are disclosed in the Consolidated Statement of Condition. For transaction-based service charges such as non-sufficient funds charges, wire transfer fees, stop payment fees, ATM fees, and other transaction-based fees, revenue is recognized at the time of sale after the transaction posts in the customer’s account.

Wealth management revenue includes non-deposit products and services offered under the names “DNB Investment & Insurance” and “DNB First Investment Management & Trust”.

Through a third-party marketing agreement with Cetera Investment Services, LLC (“Cetera”), DNB Investment & Insurance offers a complete line of investment and insurance products. DNB’s performance obligation as an agent is to arrange for the sale of products by Cetera. Monthly, DNB recognizes commission fees in the amounts to which it is entitled in accordance with the terms of the marketing agreement for products sold. Shortly after a sale, the product provider remits the commission payment through Cetera to the Company, and the Company recognizes the revenue. DNB records revenue net of the cost of the services.

DNB First Investment Management & Trust offers a full line of investment and fiduciary services. DNB’s performance obligation is to manage investments, estates and trusts. Investment management and trust income is primarily comprised of fees earned from the management and administration of trusts, estates and investment agency portfolios. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized quarterly, based upon the quarter-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after quarter end through a direct charge to customers’ accounts. While managing estates and trusts, DNB contracts with a third-party tax preparation service. For tax preparation services, DNB’s obligation as an agent is to arrange for the performance of services by the third party. As tax services are rendered, DNB records revenue net of the cost of the services.

Cardholder interchange fees consist of revenue DNB is entitled per agreements with third party debit and credit card providers. DNB’s performance obligation as an agent is to arrange for cardholder services with its customers in accordance with fees and terms offered by the third-party service providers. Based on cardholder transactions reported by third party service providers, DNB recognizes fees for the amount it is contractually entitled.

DNB also contracts with third party providers for check printing, merchant card services, and ATM services. DNB’s performance obligation as an agent is to arrange for the services with its customers in accordance with fees and terms offered by the third-party service providers. Monthly, DNB recognizes fees for the amount it is contractually entitled.

9

 


 

 

DNB adopted ASU 2015-16, Business Combinations (Topic 805), in 2016: Simplifying the Accounting for Measurement Period Adjustments on a prospective basis. This amendment eliminates the requirement to account for adjustments to provisional amounts recognized in a business combination retrospectively. Instead, the acquirer will recognize the adjustments to provisional amounts during the period in which the adjustments are determined, including the effect on earnings of any amounts the acquirer would have recorded in previous periods if the accounting had been completed at the acquisition date. DNB evaluated the impact of this guidance and it does not have a material impact to the consolidated financial statements.



In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. In particular, the guidance revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The guidance also amends certain disclosure requirements associated with fair value of financial instruments. For public business entities, the guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. As of March 31, 2019, DNB did not hold any equity investments (excluding restricted investments in bank stocks).  DNB does not expect to make significant purchases of equity investments; therefore, the adoption of this ASU is not expected to be material to DNB's consolidated financial statements. Adoption of the standard on January 1, 2018 also resulted in the use of an exit price rather than an entrance price to determine the fair value of loans not measured at fair value on a non-recurring basis in the consolidated balance sheets.



In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. DNB has determined that upon the adoption of ASU 2016-02 is required to recognize a right-of-use asset and a corresponding liability based on the then present value of such obligation. The adoption of ASU 2016-02 resulted in the recognition of operating lease liabilities of $4.4 million and right-of-use asset of $4.0 million. The adoption of the new standard did not have a material impact on its Consolidated Statements of Income. Update 2018-11 - Leases (topic 842): Targeted Improvements provided an additional/optional transition method to adopt the new leases standard. Prior to this ASU issuance, a modified retrospective transition approach was required. The adoption of this ASU does not materially impact our Consolidated Statement of Financial Condition and Consolidated Statements of Changes in Stockholders’ Equity. Update 2018-20 - Leases (topic 842): Narrow-Scope Improvements for Lessors was released to better clarify the treatment of sales taxes and other similar taxes related to Lessor and Lessees costs and payments. The amendments in this update permit lessors, as an accounting policy election, to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. Instead, those lessors will account for those costs as if they are lessee costs. Also, certain lessor costs require lessors to exclude from variable payments, and therefore revenue, lessor costs paid by lessees directly to third parties. DNB’s lessor income is immaterial; as such, this ASU does not materially impact our Consolidated Statement of Financial Condition or Consolidated Statements of Comprehensive Income. DNB adopted the use-of-hindsight practical expedient. 



DNB recognized rent expense associated with our leases as follows:







 

 

 

 

 

 



Three Months Ended

 



March 31,

 

(Dollars in thousands)

2019

 

2018

 

Operating lease cost:

 

 

 

 

 

 

Fixed rent expense

$

259 

 

$

285 

 

Net lease cost

 

259 

 

 

285 

 

Lease costs

 

 

 

 

 

 

Amortization of lease liability

 

193 

 

 

 -

 

Interest expense

 

66 

 

 

 -

 

Net lease cost

$

259 

 

$

 -

 





10

 


 

 

DNB had the following cash and non-cash activites associated with our leases:







 

 

 

 

 

 



Three Months Ended

 



March 31,

 

(Dollars in thousands)

2019

 

2018

 

Cash paid for the amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

Operating cash flows from operating leases

$

245 

 

$

242 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

Additions to ROU assets obtained from:

 

 

 

 

 

 

New operating lease liabilities

$

4,358 

 

$

 -

 



In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," (ASU 2016-13), which addresses concerns regarding the perceived delay in recognition of credit losses under the existing incurred loss model. The amendment introduces a new, single model for recognizing credit losses on all financial instruments presented on cost basis. Under the new model, entities must estimate current expected credit losses by considering all available relevant information, including historical and current information, as well as reasonable and supportable forecasts of future events. The update also requires additional qualitative and quantitative information to allow users to better understand the credit risk within the portfolio and the methodologies for determining allowance. ASU 2016-13 is effective for DNB on January 1, 2020 and must be applied using the modified retrospective approach with limited exceptions. Early adoption is permitted. Although early adoption is permitted for fiscal years beginning after December 15, 2018, DNB does not plan to early adopt. DNB has established a CECL Implementation Team to assess the impact of this ASU on its consolidated financial position, results of operations, and cash flows. DNB has been preserving certain historical loan information from its core processing system in anticipation of adopting the standard and will be evaluating control and process framework, data, model, and resource requirements and areas where modifications will be required. DNB has selected a third party vendor to process and review various calculation methodologies and the approximate impact on DNB’s financial position, results of operations and cash flows. The team continues to assess the impact of the standard; however, DNB expects adopting this ASU will result in an increase in its allowance for credit losses. The amount of the increase in the allowance for credit losses upon adoption will be dependent upon the characteristics of the portfolio at the adoption date, as well as macroeconomic conditions and forecasts at that date. A cumulative effect adjustment will be made to retained earnings for the impact of the standard at the beginning of the period the standard is adopted.

 

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). The amendments in this update provide guidance for eight specific cash flow classification issues for which current guidance is unclear or does not exist, thereby reducing diversity in practice. For public companies, the update is effective for annual periods beginning after December 15, 2017. Accordingly, effective January 1, 2018, DNB adopted the pronouncement and it did not have a material impact to DNB’s consolidated financial statements.



In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business. The new guidance narrows the existing definition of a business and provides a framework for evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities (collectively, the set) is not a business. To be considered a business, the set would need to include an input and a substantive process that together significantly contribute to the ability to create outputs, as defined by the ASU. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods, and should be applied prospectively. Early adoption is permitted. DNB will apply this guidance to applicable transactions after the adoption date.



In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The ASU simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, under the amendments, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value with its carrying amount. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount when measuring the goodwill impairment loss, if applicable. The update also eliminated the requirements for zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The amendments are effective for public business entities for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. DNB will not early adopt this ASU for its annual goodwill impairment test, and conducted a qualitative test (step zero) as of October 1, 2018 and determined that its Goodwill has not been impaired. The adoption of this ASU is not expected to have a material impact on DNB’s consolidated financial statements. 



In March 2017, the FASB issued ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” Under the new guidance, employers will present the service cost component of the net periodic benefit cost in the same income statement line item (e.g., Salaries and Benefits) as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers

11

 


 

 

will present the other components separately (e.g., Other Noninterest Expense) from the line item that includes the service cost. ASU No. 2017-07 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, however, DNB has decided not to early adopt. Employers will apply the guidance on the presentation of the components of net periodic benefit cost in the income statement retrospectively. ASU No. 2017-07 will not have a material impact on DNB Consolidated Financial Statements because the Pension plan has been frozen to new accruals since December 31, 2003, and thus, generated no service cost in any subsequent year.



In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718):  Scope of Modification Accounting; (“ASU 2017-09”).  ASU 2017-09 provides clarity by offering guidance on the scope of modification accounting for share-based payment awards and gives direction on which changes to the terms or conditions of these awards require an entity to apply modification accounting.  Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions.  The guidance is effective prospectively for all companies for annual periods beginning on or after December 15, 2017. Early adoption is permitted. DNB adopted the ASU on January 1, 2018 and the effects were immaterial.



In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income; (“ASU 2018-02”). This ASU allows a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for certain income tax effects stranded in AOCI as a result of the Tax Act. Consequently, the reclassification eliminates the stranded tax effects resulting from the Tax Act and is intended to improve the usefulness of information reported to financial statement users. However, because the ASU only relates to the reclassification of the income tax effects of the Tax Act, the underlying guidance that requires the effect of a change in tax laws or rates to be included in income from continuing operations is not affected. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. DNB adopted this ASU on January 1, 2018. The amount of this reclassification is $471,000. 



12

 


 

 

NOTE 2: INVESTMENT SECURITIES



The amortized cost and fair values of investment securities, as of the dates indicated, are summarized as follows:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



March 31, 2019



Amortized

 

Unrealized

 

Unrealized

 

 

(Dollars in thousands)

Cost

 

Gains

 

Losses

 

Fair Value

Held To Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US Government agency obligations

$

8,817 

 

 

$

33 

 

 

$

 -

 

 

$

8,850 

 

Government Sponsored Entities (GSE) mortgage-backed securities

 

369 

 

 

 

 

 

 

 -

 

 

 

373 

 

Corporate bonds

 

13,759 

 

 

 

142 

 

 

 

(12)

 

 

 

13,889 

 

Collateralized mortgage obligations GSE

 

1,102 

 

 

 

 -

 

 

 

(21)

 

 

 

1,081 

 

State and municipal taxable

 

362 

 

 

 

 -

 

 

 

(1)

 

 

 

361 

 

State and municipal tax-exempt

 

36,591 

 

 

 

52 

 

 

 

(291)

 

 

 

36,352 

 

Total

$

61,000 

 

 

$

231 

 

 

$

(325)

 

 

$

60,906 

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available For Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US Government agency obligations

$

38,088 

 

 

$

 

 

$

(139)

 

 

$

37,952 

 

GSE mortgage-backed securities

 

27,591 

 

 

 

 

 

 

(605)

 

 

 

26,989 

 

Collateralized mortgage obligations GSE

 

9,909 

 

 

 

 -

 

 

 

(363)

 

 

 

9,546 

 

Corporate bonds

 

10,868 

 

 

 

 -

 

 

 

(126)

 

 

 

10,742 

 

State and municipal tax-exempt

 

1,978 

 

 

 

 -

 

 

 

(85)

 

 

 

1,893 

 

Total

$

88,434 

 

 

$

 

 

$

(1,318)

 

 

$

87,122 

 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



December 31, 2018



Amortized

 

Unrealized

 

Unrealized

 

 

(Dollars in thousands)

Cost

 

Gains

 

Losses

 

Fair Value

Held To Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US Government agency obligations

$

8,749 

 

 

$

41 

 

 

$

 -

 

 

$

8,790 

 

Government Sponsored Entities (GSE) mortgage-backed securities

 

389 

 

 

 

 -

 

 

 

 -

 

 

 

389 

 

Corporate bonds

 

13,851 

 

 

 

124 

 

 

 

(47)

 

 

 

13,928 

 

Collateralized mortgage obligations GSE

 

1,159 

 

 

 

 -

 

 

 

(27)

 

 

 

1,132 

 

State and municipal taxable

 

362 

 

 

 

 -

 

 

 

(3)

 

 

 

359 

 

State and municipal tax-exempt

 

37,516 

 

 

 

19 

 

 

 

(998)

 

 

 

36,537 

 

Total

$

62,026 

 

 

$

184 

 

 

$

(1,075)

 

 

$

61,135 

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available For Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US Government agency obligations

$

48,082 

 

 

$

 -

 

 

$

(359)

 

 

$

47,723 

 

GSE mortgage-backed securities

 

27,563 

 

 

 

 -

 

 

 

(1,005)

 

 

 

26,558 

 

Collateralized mortgage obligations GSE

 

10,249 

 

 

 

 -

 

 

 

(441)

 

 

 

9,808 

 

Corporate bonds

 

10,890 

 

 

 

 -

 

 

 

(186)

 

 

 

10,704 

 

State and municipal tax-exempt

 

1,981 

 

 

 

 -

 

 

 

(131)

 

 

 

1,850 

 

Total

$

98,765 

 

 

$

 -

 

 

$

(2,122)

 

 

$

96,643 

 



Included in unrealized losses are market losses on securities that have been in a continuous unrealized loss position for twelve months or more and those securities that have been in a continuous unrealized loss position for less than twelve months. The following table details the aggregate unrealized losses and aggregate fair value of the underlying securities whose fair values are below their amortized cost at March 31, 2019 and December 31, 2018.

13

 


 

 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



March 31, 2019



 

 

 

 

Fair Value

 

Unrealized

 

Fair Value

 

Unrealized



 

 

Total

 

Impaired

 

Loss

 

Impaired

 

Loss



Total

 

Unrealized

 

Less Than

 

Less Than

 

More Than

 

More Than

(Dollars in thousands)

Fair Value

 

Loss

 

12 Months

 

12 Months