DNB Financial Corporation
Annual Report 2013

Plain-text annual report

2013 Annual Report The Impact of Growth 2013 ANNUAL REPORT FINANCIAL CORPORATION The Impact of Growth In these competitive times, growth is no longer a luxury for financial institutions, but a necessity. Today, we must continually focus on ways to grow, not for the sake of growth alone, but for the short- and long-term success of the people, businesses, and communities that depend on us. This Annual Report highlights DNB First’s strong record of financial growth and performance in 2013. The true impact of our growth, however, lies with the shareholders, customers, businesses, employees, and communities that will benefit from our strength for years to come. Dear Valued Shareholders, Customers, and Employees: We are proud to present our 2013 Annual Report, which reflects a very exciting and productive year for DNB Financial Corporation. During 2013, we delivered earnings, greatly strengthened our balance sheet, invested in expanded capabilities, and grew value for shareholders so that we can continue to have the strength and stability to positively impact you and our local communities for years to come. In a year that focused on building a solid foundation for the future, we hit the primary targets we had established for this early phase of our growth strategy. In 2013, net income available to common shareholders was $3.77 million or $1.36 per diluted common share, compared with $4.91 million or $1.79 per diluted common share for the 12 months ended December 31, 2012. The lower year- over-year comparison reflects, in good part, decisive action taken during 2013 to write down and remove non-performing assets from our balance sheet. Entering 2014 with significantly improved asset quality and a strong capital position, we believe DNB has built a solid foundation for productive, profitable growth. The operating results supporting our earnings reflected our 2013 commitment to growing revenue from a diversified mix of commercial, retail, and wealth management services. We met the challenges of a sluggish economic climate, increased regulatory costs, and an uncertain interest rate environment head on. Expanded banking relationships with our customers contributed to a 5.4% increase in net loans and a 5.3% increase in total deposits. The Company trimmed total interest expense 23% from 2012, reflecting ongoing interest rate management practices and the growth of core deposits. Growth in our wealth management business was also strong, resulting in a 23.5% increase in total assets under care, and a 43% increase in fee income from DNB Investment Management and Trust. To support future growth and productivity, we made strategic investments, including upgrading infrastructure and facilities, adding product lines and services, hiring experienced individuals, and establishing a residential mortgage operation. Our enhanced capabilities ensure we have the ability to provide the range of financial solutions needed to continue growing. When DNB succeeds, so do our stakeholders — customers, employees, shareholders, and communities. As a local company, we feel a particular responsibility to give back to the communities where we, and our customers, live and work. It is rewarding to contribute to our economy by providing employment, helping meet the financial needs of businesses and individuals, and supporting the charitable and civic organizations committed to improving the quality of life for all. In addition to the financial support we provided to our community, our employees gave generously of their time and energy to support a variety of organizations, including schools, pantries and shelters, art organizations, and many others. Collectively, it is our pleasure to serve and support our community. DNB’s commitment to building value for shareholders was reflected in the value of our stock, which increased $5.25 or 34% during the year, from $15.50 to $20.75. In addition, we paid our 18th consecutive quarterly cash dividend to common shareholders in the fourth quarter of 2013. In 2013, we were pleased to welcome James Biery to our Board of Directors. Among his many accomplishments, he served as President and CEO of the Pennsylvania Bankers Association for 22 years. His knowledge and experience is a tremendous asset to our leadership team and our shareholders. With a talented team leading the way, the greatest range of financial solutions in DNB’s history, and a growth strategy that has shown early positive results, we are enthusiastic about our direction and ability to deliver results. We appreciate the steadfast support we have received from all our stakeholders, particularly as we navigated the challenges the past several years have presented. We look forward to demonstrating the highest levels of commitment to you in the coming year. Sincerely, William S. Latoff, Chairman and CEO William J. Hieb, President and Chief Risk and Credit Officer The Yields of Growth For a financial institution, growth can be measured in many ways – net income, revenue, asset size, or return on equity. At DNB First, we also measure growth in another way – by the impact our strength has had on the people and organizations we serve. Whether we were giving our valued customers more time and control over their money, providing credit to help local businesses expand, helping individuals pursue their passions, or assisting non-profit organizations with carrying out their missions, DNB First was proud to impact the lives of our shareholders, customers, neighbors, employees, and fellow members of the community. Businesses, Jobs, and Stronger Economies Our financial strength in 2013 and in previous years has been reflected in our ability to do something many banks have been unable to do – help local businesses get the credit they need to grow and prosper. We were proud to provide loans and cash management solutions to help local businesses, the lifeblood of our economies, reach new levels of growth. experienced professionals understand the local marketplace and are trusted advisors who can connect their clients to the solutions, resources, and people they need to succeed. Our team of Relationship Managers is not the only benefit of local banking. DNB First also provides our customers with the benefits of local decisions and access to the decision makers, a big advantage not available with out-of- region financial institutions. In 2013, we continued to offer businesses a unique competitive advantage – a knowledgeable team of Relationship Managers. These Room to Grow In 2013, we were proud to help our customers reach their goals. Pat Marrone was able to use a DNB First Home Equity Loan to give his mother her dream kitchen, where she proudly hosts Friday night family dinners. Serving the Needs of Families As a community bank, DNB First has always understood the importance of families and helping them reach their financial goals. It’s something that Pat Marrone, a long-time DNB First customer, experienced when he turned to DNB First to get a home equity loan to help his mother renovate her kitchen. “My mother loves to entertain and badly needed a new kitchen. I wanted to give her the kitchen she deserved and DNB First made the process so easy. They were helpful and offered the best home equity rate around. I would tell anyone who was doing business with DNB First to relax. They did exactly what they said they were going to do with no runaround or surprises.” DNB First knows how important family-owned businesses, such as Talluto’s Italian Foods, are to our community. Pictured with Al Melfi of DNB First, is Joseph F. Talluto, Director of Sales, (left) and his father Joseph A. Talluto, President and CEO (right). “When we needed a business loan in order to grow, the Small Business Development Center (SBDC) recommended DNB First. Choosing DNB was one of the best business decisions we ever made. DNB First isn’t just a bank; they’re a partner that’s a critical part of our business. The relationship we have with them is not diluted; we are able to meet with the primary decision makers who actually know us. They’ve given us some very helpful advice and are always very interested in what we’re doing. Currently, DNB First is helping us plan for future growth. They’ve always made it clear to us that our business is important to them.” Joe Talluto, Owner, Talluto’s Authentic Italian Foods Rising to the Top In 1978, when David Braverman opened the window of an old school bus he converted to a food vending truck to greet his first customer, he had no idea he would be opening the door to a growing and successful business. Today, the company has grown into a successful retail and wholesale business, LeBus Bakery, which offers a robust assortment of artisan baked goods. Recently, when the company needed a financial institution to accommodate its growth, they turned to DNB First. “DNB has been fantastic. They were able to help us put together a package to help us enhance our equipment, expand our location, and manage cash flow. Working with them has been seamless, as they are able to advance the funds we need to keep production flowing. I don’t know what we would do without them,” Anthony Labetti, Vice President, LeBus Bakery Mobile Money app to seamlessly and effortlessly conduct everyday banking from their smartphones or other mobile devices. Now, in addition to Mobile Money, we offer Mobile Deposit, which allows customers to deposit checks by taking photos with smartphones, eliminating trips to the branch. “I live and work in Philadelphia so I can’t easily get to a DNB First branch to make deposits. Usually, I have to wait until I come home to deposit my checks. My mother suggested I try Mobile Deposit. I couldn’t believe how easy it was to use. I just took the picture of my check and before I knew it, the money was in my account. It definitely saved me time.” Kelsey Beam Another way we improved financial convenience and control for our customers was through the introduction of Instant Issue Debit Cards. Now individuals and business owners can request and receive DNB First Debit Cards instantly at any branch, without having to wait for them to arrive by mail. Improving our Branch Network In 2013, we made significant investments to improve the appeal of our branches, most notably our West Chester branch, which features new signage to increase the visibility of this important location, and houses additional office space for DNB First Wealth Management, Retail, and Commercial Banking. As part of our commitment to the arts in our communities, the branch also features paintings of historically significant events in Chester County created by local artist Adriane Martinez. Our comfortable and convenient branches are a reminder to members of the community that they are always welcome at DNB First. In 2013, we continued to rise to the needs of customers, such as LeBus Bakery. Pictured from left to right is DNB First Relationship Manager, Thomas Cozza with LeBus Bakery’s Master Baker, Moussa Doumbia; Founder/Owner, David Braverman, and Vice President of Operations, Anthony Labetti. Long-Term Relationships Our growth and financial strength is also one of the reasons DNB First has been able to stand by our customers – in good and challenging economic cycles. Robert Pearson, Partner in Glenelg Farms, a housing development, shares: “In 2001, my partners and I were looking to obtain a construction loan to develop housing. DNB First stepped up to the plate and got us financed. At the time, the economy was good and the lots sold like clockwork. Based on the success of that model, in 2007, they helped us finance a second development. By 2008, the economy had worsened and we’ve hit some hard times over the past few years. Despite our struggle, DNB First has stood behind us. They really took the time to know us and have helped work with us through difficult times. They are one of the few banks willing to support construction loans because they want to help the community.” Convenience and Control As a community-based institution dedicated to serving our customers, DNB First has always strived to make banking more convenient and give our customers greater financial control. In 2013, we invested in technology to enhance our mobile banking capabilities. Customers may now download our Business GrowthWealth Management DNB First’s impact in the community was not just felt by local businesses, but also by individuals and families looking to realize their goals. To help our clients manage and preserve wealth, we continued to enhance our Wealth Management offerings. The assets we administer increased 23.5%, indicating our clients are seeing the benefits of working with a local company they know and trust. In 2013, individuals and families relied on DNB First Wealth Management for a variety of reasons, including managing retirement funds, helping finance college educations, and preserving wealth through trusts. Personal Growth On the Course to Success DNB Wealth Management has had a tremendous impact on the people in our communities, including local golfer and Morgantown resident, R.J. Wren, who was born with an injury that resulted in nerve damage to his shoulder and arm. At the age of seven, R.J. discovered a passion for golf. Today, a high school sophomore, R.J. has become an accomplished, competitive golfer. He was twice-named Philadelphia PGA Jr. Player of the Year and travels the country using his skills to raise money for Shriner’s Hospitals for Children. To help make his golf story possible, his father, Russ Wren, credits DNB First Wealth Management. “When R.J. was injured, we received a settlement for his care. DNB Wealth Management has helped us successfully manage those funds. The interest from the funds helps pay for the cost of R.J. to attend and participate in golf tournaments and do what he loves to do. DNB Wealth Management has had a major impact on R.J.’s life, helping him pursue his passion on and off the course.” Full-Service Banking In 2013, we continued to invest in technology, people, and infrastructure to strengthen relationships with our customers. With Wealth Management, for example, we invested in a financial planning program to allow us to help our valued clients reach their financial goals for every stage of life. We also upgraded technology to invest in new products and services and to offer our wealth management clients an even higher level of service and reporting. Also in 2013, DNB First established a new mortgage unit to help more individuals and families reach their goal of homeownership and to allow us to build non-interest income to fuel our growth in the future. With our new technology and targeted e-mail marketing efforts geared toward enhancing relationships with our customers, we are able to strengthen the relationships with our customers and increase returns for our shareholders. We also implemented extensive online marketing to attract new customers to the Bank. Collectively, these efforts will ensure we sustain the growth necessary to support our customers and communities for years to come. To provide another cost-effective means of communication with our customers, we also continued to build on our social media efforts to illicit feedback and share news and helpful information. “I’m the administrator of a trust for a deceased relative. The trust was with a local bank that was purchased by a larger bank, which wasn’t a good fit for me. Moving the trust to DNB First Wealth Management was the best decision I could have made. They meet with me regularly to discuss their approaches and have provided nice returns on our funds. It all comes down to trust. People can only trust someone when they know them. I trust DNB because they don’t just talk the talk; they walk the walk.” Dr. Timothy Blair, Dean and Professor of Piano, College of Visual and Performing Arts, West Chester University Community Involvement As a local bank, DNB First has always been dedicated to helping strengthen and give back to the local communities we proudly serve. In 2013, we continued to do our part to help improve the quality of life for all. Whether we were making charitable donations, providing funding for educational programs through Pennsylvania’s Educational Tax Credit Program (EITC), dispatching employee volunteers to help feed the hungry, or investing in local programs that bring people together, our impact could be felt. We were proud to give more than $600,000 to a variety of local causes and programs as well as to non-profit organizations in Chester and Delaware Counties, including food pantries, churches, youth sports organizations, and the arts. Preserving History One organization, we continued to strengthen is the Chester County Historical Society. As President, Rob Lukens shares: “DNB First has significantly helped us grow in so many ways. First, they are the leading funder of the Educational Improvement Tax Credit Program (EITC), which has enabled us to provide educational programs to thousands of Chester County students. They have also helped us strengthen our financial position through lending and investment management and provided strong leadership on our Board of Trustees for more than a decade, helping us expand our relevance and profile in the community.” As part of our ongoing efforts to fight hunger, we sponsored a food drive to support the Lord’s Pantry in Downingtown. The donations from employees and customers helped provide food to nourish local residents in need. To support children’s health, in 2013, we continued to take important steps to support the March of Dimes, ”March for Babies,” which helps promote healthy, full-term pregnancies for mothers. Financial Growth Teaching Personal Finance To help foster educational literacy in our communities, DNB First was proud to invest in the DNB First Financial Literacy Program. This unique program, provided in conjunction with Everfi, the leading educational technology company, offers financial education programs to help Downingtown and West Chester High School students make smart financial decisions. Topics covered include managing credit cards, financing college, and understanding the importance of savings. “DNB First understands how important young people are to the future of our communities, and is dedicated to helping provide them with the financial education they need to make smart financial decisions today – and in the future,” adds William S. Latoff, DNB First Chairman and CEO. DNB Financial Corporation — Selected Financial Data Results of Operations Interest income Interest expense Net interest income Provision for credit losses Non-interest income Non-interest expense Income before income taxes Income tax expense Net income 2013 2012 2011 2010 2009 $23,212 $25,729 $26,174 $26,050 $25,948 2,888 20,324 2,530 4,795 3,755 21,974 1,455 4,088 4,644 21,530 1,480 3,643 7,062 18,988 2,216 5,430 10,629 15,319 1,325 4,507 17,450 17,262 16,725 16,903 16,590 5,139 1,220 7,345 2,106 6,968 2,066 5,299 1,629 1,911 362 $3,919 $5,239 $4,902 $3,670 $1,549 Preferred stock dividends & accretion of discount 148 332 779 618 Net income available to common stockholders $3,771 $4,907 $4,123 $3,052 Per Share Data Basic earnings Diluted earnings Cash dividends Book value 2013 $1.38 1.36 0.28 16.55 2012 $1.81 1.79 0.20 16.08 2011 $1.54 1.53 0.12 14.14 2010 $1.16 1.16 0.12 12.55 567 $982 2009 $0.38 0.38 0.23 11.88 Weighted average Common shares outstanding — basic 2,742,417 2,710,819 2,674,716 2,635,549 2,606,596 Financial Condition Total assets Loans and leases, gross Allowance for credit losses Deposits Borrowings Stockholders’ equity Selected Ratios Return on average stockholders’ equity Return on average assets Average equity to average assets Loans to deposits Dividend payout ratio 2013 2012 2011 2010 2009 $661,473 $639,568 $607,099 $602,332 $634,248 415,354 396,498 403,684 396,171 359,427 4,623 6,838 6,164 5,884 5,477 558,747 530,424 497,545 492,746 507,347 39,674 58,583 46,864 56,705 53,647 51,056 60,230 45,208 79,450 42,876 2013 6.75% 0.60 8.92 74.34 20.65 2012 2011 9.61% 10.01% 0.84 8.98 74.75 11.17 0.80 7.99 81.14 7.84 2010 8.03% 0.59 7.40 80.40 10.37 2009 3.76% 0.26 6.87 70.84 59.68 At or for the year ended December 31 (Dollars in thousands, except share data) DNB Financial Corporation shares are traded on the Nasdaq Capital Market under the symbol: DNBF Advisory Board Members DNB Financial Corporation Top row, left to right: Eli Silberman, Board Chair; President, TSG, Inc. Peter R. Barsz, CPA, Partner, Merves, Amon & Barsz, LLC Joseph E. Brion, Esq., Chairman, Buckley, Brion, McGuire & Morris LLP Jeffrey P. Brown, Partner, KMRD Partners, Inc. Second row, left to right: Joseph J. DellaVecchia, III, President, DellaVecchia, Reilly, Smith and Boyd Funeral Home Vincent T. Donohue, Esq., Shareholder, Lamb McErlane PC Charles A. Hackett, CPA, President, Bliss & Co., Ltd. Rosaria Hawkins, PhD, President, Take Charge Consultants, Inc. Third row, left to right: Matthew D. Kelly, Partner, Carnegie Wealth Management James A. Mellon, Jr., President, Mellon Certified Restoration A. Joseph Rubino, General Partner, Rubino Holdings LP Charles E. Swope, Jr., Swope Lees Commercial Real Estate, LLC Fourth row, left to right: Cuyler H. Walker, Esq., Partner, Pepper Hamilton, LLP Joan Walsh, Co-Owner, Kashbox Consulting Greg R. Weisenstein, Ed.D., President, West Chester University George C. Zumbano, Esq., Shareholder, Gawthorp Greenwood, PC Top row, left to right: Jay G. Fischer, Esq., Partner, Valocchi & Fischer Frank Hayes, Esq., Partner, Hayes & Romero Suzanne R. Jackson, CPA, Owner, SR Jackson, LLC Jerry L. Johnson, Esq., Attorney at Law Second row, left to right: Donald B. Lynn, Jr., Esq., Partner, Larmore Scarlett, LLP Stacey Willits McConnell, Esq., Partner, Lamb McErlane, PC John McKenna, Esq., Shareholder/Director, MacElree Harvey, Ltd. Anthony Morris, Esq., Partner, Buckley, Brion, McGuire & Morris LLP Third row, left to right: Stephen J. Olsen, Esq., Gawthrop Greenwood, PC Robert S. Supplee, Esq., Robert S. Supplee, PC Richard C. Weber, Board Chair, Managing Director, DNB First Wealth Management Wealth Management Advisory Board Board of Directors DNB Financial Corporation Seated, left to right: James J. Koegel, Director; President, Jones Motor Group, Inc. William S. Latoff, Chairman and Chief Executive Officer Mildred C. Joyner, Director; President of the Council on Social Work Education Standing, left to right: James H. Thornton, Director; President, Thornton Consulting William J. Hieb, Director; President and Chief Risk and Credit Officer Gerard F. Griesser, Director; President, Fox & Roach/Trident Thomas A. Fillippo, Director; President, Devault Foods Executive Management Team and Officers Seated: Standing, left to right: William S. Latoff, Chairman and Chief Executive Officer James F. Gagliano, Director of Retail Services William J. Hieb, President and Chief Risk and Credit Officer Richard C. Weber, Senior Vice President, Managing Director of Catherine H. Hall, Senior Vice President, Director of Marketing Wealth Management Albert J. Melfi, Jr., Executive Vice President, Chief Lending Officer Gerald F. Sopp, Executive Vice President, Chief Financial Officer and Corporate Secretary Frank S. Monterosso, Senior Vice President, Director of Operations Bruce E. Moroney, Executive Vice President, Chief Accounting Officer DNB First Branch Locations Boothwyn 3915 Chichester Avenue Boothwyn, PA 19061 Caln 1835 East Lincoln Highway Coatesville, PA 19320 Chadds Ford 300 Oakland Road West Chester, PA 19382 Downingtown/East End 701 East Lancaster Avenue Downingtown, PA 19335 Downingtown/Main 4 Brandywine Avenue Downingtown, PA 19335 Exton 410 Exton Square Parkway Exton, PA 19341 Kennett Square 215 East Cypress Street Kennett Square, PA 19348 Lionville 891 North Pottstown Pike Exton, PA 19341 Little Washington 104 Culbertson Run Road Downingtown, PA 19335 Ludwig’s Corner 1030 North Pottstown Pike Chester Springs, PA 19425 Media 323 West State Street Media, PA 19063 West Chester 2 North Church Street West Chester, PA 19380 West Goshen 1115 West Chester Pike West Chester, PA 19380 FINANCIAL CORPORATION DNB First n 4 Brandywine Avenue n Downingtown, PA 19335 

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