26320_DNB_AR.qxp:Layout 1 3/16/09 2:56 PM Page 2 SM 26320_DNB_AR.qxp:Layout 1 3/16/09 2:56 PM Page 3 26320_DNB_AR.qxp:Layout 1 3/24/09 9:21 AM Page 4 2008 was a year of positive achievements for DNB Financial CORPORATION Dear Shareholder 2008 was a year of positive achievements for DNB Financial despite the challenges for the banking industry in general and the economy overall. While the Company’s full financial performance is reported in our 10-K, we wanted to highlight some of the more significant elements. We are proud of the fact that 2008 was a profitable year for the bank, as compared to the results reported by many other financial institutions. Commitment to fundamental banking spared us the massive losses and write-downs associated with the aggressive and irresponsible lending and investment practices of many large money centers and investment banks. There are significant differences between traditional community banks and Wall Street investment banks. Community banks like DNB First lend and invest in local communities and employ more prudent underwriting guidelines. We lend to local homeowners and business men and women. We help our customers save for their children’s college educations and their own retirements. Our employees serve in volunteer and leadership roles in a variety of non-profit, civic, and service organizations. Even though we have exercised good judgment and sound underwriting standards throughout the years, our borrowers have been affected by the current economic downturn. As a result, delinquent and non-performing assets increased during 2008. We made appropriate provisions to our loan loss reserve throughout 2008 and will continue to work with our customers during this difficult time. Further, attention to expense control over the past several years served us well as we have held our non- interest expense essentially flat while staffing two new branches, making substantial improvements to others, and investing in technology to remain competitive in our markets. At every level, DNB First staff found new ways to reduce bank expenses while remaining committed to the quality of service our customers expect. We have continued to make important investments in operational efficiencies and facilities, including much-needed renovations to our historic Main branch and headquarters building. These improvements were structurally necessary and essential to remain competitive in our market and meet customer expectations. The bank remains well capitalized and poised to continue its growth. The decision to reduce the quarterly dividend was, while difficult, the right decision. Our industry continues to confront uncertainty and a weakening economy. This move preserves capital to grow the bank and increase shareholder value. While we recognize the seriousness of the challenges facing us and the nation, we remind you that DNB has survived and thrived through previous economic cycles by remaining focused on our guiding principles. Continued involvement in our communities through leadership, service and financial support has earned us a reputation of consistency and reliability in both business and consumer markets. This commitment has been the cornerstone of our nearly 150 year history and will carry us through the current economic challenges. Now more than ever, DNB First is here to offer customers and prospects alike sound financial solutions for all their banking needs. We thank you for your continued support. William S. Latoff Chairman & CEO William J. Hieb President & COO 26320_DNB_AR.qxp:Layout 1 3/19/09 4:52 PM Page 5 W hile undergoing renovations at the Main branch and headquarters some dusty old boxes were discovered and the contents gave us goose bumps. Newspaper clippings from the 1850’s and 60’s announcing the formation of DNB First. Minutes from the very first Board of Directors meetings. Old advertising. Checks from 140 years ago. Old photos. This treasure trove is not only a history of the bank, but of the entire region. For instance, did you know that for a few hours Downingtown was actually the nation’s capital? As part of the DNB First family, we thought you might enjoy some family history. Starting at the beginning, below is a photo taken in 1860 of a store built in 1818. The store is on the sight of our Main Branch at Lancaster Avenue and Route 322. Enter the Main branch today and see a grandfather clock made in 1793 in Chester County by Ellis and Isaac Chandlee. This museum quality antique is a symbol of DNB First’s longevity and stability. If you were to join our Christmas Club in 1925 and saved 25 cents a week, by the following Christmas you would have had 12 dollars and 50 cents to spend on gifts. The 50 dollar check on the facing page is from the early 1860’s. We wonder what they spent the money on. The hand written ledger from 1862 was how bank transactions were recorded. Makes us appreciate our computers. 26320_DNB_AR.qxp:Layout 1 3/16/09 2:57 PM Page 6 26320_DNB_AR.qxp:Layout 1 3/20/09 11:51 AM Page 7 DNB First was born in 1860. . . 2008 has been an economically challenging year for families, retailers, companies, and banks. To put it in perspective, since the bank’s founding in 1860, the U.S. experienced thirteen recessions and depressions. Through every one DNB First was there providing its usual high level of service and helping customers weather the stormy times. When the good times returned, and they always did, your bank was solid and strong. As were relationships with our valued depositors. We look to the future with confidence and with optimism. Looking to the past we see that the history of the bank is intertwined with the history of the region and the country. In 1860, after five years of planning and effort, the bank was formed. Charles Downing is elected President and so is Abraham Lincoln. In 1952 the bank interior goes through extensive renovation and Dwight D. Eisenhower is running for President. In 1863 the bank’s capital increases to $100,000 and the National Banking Act passes Congress. In 1900 the bank purchases the lot on the corner of Lancaster and Brandywine Avenues and the population of the U.S. is 75 million. In 1903 the new bank building is two years old and the first World Series is played. 1917 sees Thomas W. Downing as the new President of the bank and World War One ends. By 1926 there are 31 banks in the County and DNB First holds the distinction of being the first. Flash floods in 1942 cause a local disaster, the vaults in the concrete basement are flooded and World War Two is raging. 1945 and the world rejoices as the war ends. 1963 sees the second branch of the bank opening, and Martin Luther King Jr. delivers his I Have a Dream speech. In 1974 the bank’s Little Washington branch is opened and FDIC insurance raised to $40,000. 1989 and two more branches built and the Hubble telescope is nearing completion and eventual launch. 1991 yet another branch opened. 2007 and 2008 the bank opens two branches in Delaware County which includes the beautiful new Chadds Ford branch and the first African American President is elected. 1860 1901 Original site of Downingtown Main branch Downingtown Main at the turn of the century 19 Downingtown Main new 26320_DNB_AR.qxp:Layout 1 3/20/09 11:52 AM Page 8 T he Downingtown flood in August of 1942 was one of the many extraordinary events that have tested the strength of the bank throughout our history. Vaults in the concrete basement were submerged. We had a lot of wet money. Through every crisis, the bank has rebounded stronger and confident. Each challenge was met with conviction and optimism. History is the story of survivors. The history of our community is the history of DNB First. 1962 n Main branch with new side entrance 2009 2009 Downingtown Main branch after enlargements and renovations Our 13th branch in Chadds Ford had its grand opening two years ago. 26320_DNB_AR.qxp:Layout 1 3/19/09 4:55 PM Page 9 What We’ve Learned in 148 Years of Banking in Chester County. Explain. e wise and prudent. No sub-prime lending. No credit-default swaps, B whatever they are. No big bank crap-shoots with a depositor ’s money. Assure a depositor ’s money is safe and available when needed. The Federal Deposit Insurance Corporation guarantees your money is safe, now up to $250,000. Nobody has ever lost insured deposits with a federally insured bank. Provide the kind of banking services our customers need, not ones that are more profitable for the bank, but inappropriate for the individual. Never sell. Make sure shareholders of the bank are local business men and women, customers, friends and neighbors, people we can look in the eye every day. Never forget we’re a community bank, serving Chester and now Delaware Counties. Do all we can to contribute to the success and happiness of its institutions and citizenry. Encourage our friendly competitors to do the same. Remember that Teddy Roosevelt had it right: Ride hard, shoot straight, and deal square. A final thought from Bill Latoff, CEO, and Bill Hieb, President. The current turmoil in the financial markets is a result of the greed of Wall Street traders, speculators, and lax regulations. There is enough blame to go around, but millions of us saving for retirement or college did nothing wrong. We look forward to serving you. We have money to lend and solutions to offer. DNB First is determined to remain a strong force in our marketplace and our community. 26320_DNB_AR.qxp:Layout 1 3/16/09 2:58 PM Page 10 DNB First Board of Directors. Standing: Thomas A. Fillippo, Eli Silberman, William S. Latoff, James H. Thornton. Sitting: Mildred C. Joyner, James J. Koegel, William J. Hieb Directors and Officers of DNB Financial Corporation Thomas A. Fillippo Mildred C. Joyner, MSW, LCSW, BCD James J. Koegel Eli Silberman James H. Thornton William S. Latoff William J. Hieb Director; President, Devault Foods Director; Professor, Director and Chairperson, Undergraduate Social Work Department, West Chester University Director; President, Jones Motor Group, Inc. Director; President, TSG Inc., Marketing Consultants Director; Director of John Dempsey Hospital of the University of Connecticut Director; Chairman and Chief Executive Officer Director; President and Chief Operating Officer Richard J. Hartmann Executive Vice President - Retail Banking and Marketing Albert J. Melfi, Jr. Bruce E. Moroney Gerald F. Sopp Executive Vice President and Chief Lending Officer Executive Vice President and Chief Accounting Officer Executive Vice President, Chief Financial Officer and Secretary Directors Emeritus. Robert J. Charles, I. Newton Evans, Jr., Vernon J. Jameson, Henry F. Thorne Our first bank President, Charles Downing 26320_DNB_AR.qxp:Layout 1 3/16/09 3:54 PM Page 11 Our Advisory Board consists of successful local business people. They offer additional perspective on the needs and significant concerns within our community. We are proud to have their involvement and input for guidance. Peter R. Barsz, CPA Joseph E. Brion, Esq. Jeffrey P. Brown Tamara C. Cansler Dominic J. Cappelli, Jr. Vincent T. Donohue, Esq. Isidoro Gonzalez, MD Advisory Board Members: Partner, Merves, Amon & Barsz, LLC Partner, Buckley, Brion, McGuire, Morris & Sommer LLP President, General InsurCorp, Inc. President and CEO, Cansler Investment Group Inc. CEO, The Cappelli Group, Inc. Chairman of Business & Real Estate Group, Lamb McErlane PC Senior Vice President - Programs and Training, Congreso Charles A. Hackett, CPA President, Bliss & Co., Ltd. Arthur R. Leahy A. Joseph Rubino Kathy Scullin Gary W. Smith Cuyler H. Walker, Esq. George C. Zumbano, Esq. First Vice President - Investments, Janney Montgomery Scott, LLC President, KSL Corporation Vice President of Marketing and Public Relations, Crozer-Keystone Health System President and CEO, Chester County Economic Development Council Partner, Pepper Hamilton, LLP Attorney and Shareholder, Gawthrop Greenwood & Halsted 26320_DNB_AR.qxp:Layout 1 3/19/09 4:59 PM Page 12 Branches Caln 1835 E. Lincoln Highway Coatesville, PA 19320 610.383.7562 ChaddsFord 300 Oakland Road West Chester, PA 19382 610.361.8227 Downingtown-EastEnd 701 E. Lancaster Avenue Downingtown, PA 19335 610.269.3800 Downingtown-Main 4 Brandywine Avenue Downingtown, PA 19335 610.269.1040 Exton 410 Exton Square Parkway Exton, PA 19341 610.363.7098 KennettSquare 215 East Cypress Street Kennett Square, PA 19348 610.444.4350 Lionville 891 N. Pottstown Pike Exton, PA 19341 610.363.7590 LittleWashington 104 Culbertson Run Road Downingtown, PA 19335 610.942.3666 Ludwig’sCorner 1030 N. Pottstown Pike Chester Springs, PA 19425 610.458.5100 Media 200 E. State Street, Suite 208 Media, PA 19063 484.359.3653 TelHai 1200 Tel Hai Circle Honey Brook, PA 19344 610.273.7233 WestChester 2 N. Church Street West Chester, PA 19382 610.429.3030 WestGoshen 1115 West Chester Pike West Chester, PA 19380 610.429.5860 Management Team: William S. Latoff, Frank S. Monterosso, Richard J. Hartmann, William J. Hieb, Gerald F. Sopp, Albert J. Melfi, Jr., and Bruce E. Moroney Executive Management Team and Officers of DNB First: William S. Latoff William J. Hieb Richard J. Hartmann Albert J. Melfi, Jr, Bruce E. Moroney Gerald F. Sopp Thomas L. Cozza C. Tomlinson Kline, III Frank S. Monterosso Stasia H. Whiteman Chairman and Chief Executive Officer President and Chief Operating Officer Executive Vice President – Retail Banking and Marketing Executive Vice President and Chief Lending Officer Executive Vice President and Chief Financial Officer Executive Vice President and Secretary Senior Vice President – Commercial Lending Senior Vice President and Senior Credit Officer Senior Vice President – Operations Senior Vice President – Commercial Lending Our appreciation to The Chester County Historical Society and the Downingtown Area Historical Society for providing the various historic images used. Portrait photography by Jim Graham Photography, LLC. Annual Report design by Lori Cooperstein, Innovations Graphic Design, Inc. 26320_DNB_AR.qxp:Layout 1 3/16/09 3:16 PM Page 1 D N B F i r s t • 4 B r a N D y w i N e av e N u e , D o w N i N g t o w N , Pa 1 9 3 3 5 SM