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Section 1: 10-Q (10-Q)

20160630 Q2

 

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: June 30, 2016

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                                       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

   



 

 

Yes

 

No



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). 





 

 

Yes

 

No



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



 

 

 

 

 

Large accelerated filer

  

Accelerated filer

  

Non-accelerated filer    

 

Smaller reporting company

 

 

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)

 

2,853,434 (Shares Outstanding as of August 12, 2016) 



1


 

 

DNB FINANCIAL CORPORATION AND SUBSIDIARY





INDEX



                                                                



 

 

 

 

 



 

PART  I - FINANCIAL INFORMATION

PAGE NO.



 

 

 

ITEM 1.      

 

FINANCIAL STATEMENTS (Unaudited):

 



 

 

 



 

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

 



 

June 30, 2016 and December 31, 2015



 

 

 



 

CONSOLIDATED STATEMENTS OF INCOME

 



 

Three and Six-Months Ended June 30, 2016 and 2015



 

 

 



 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 

 

 

 



 

Three and Six-Months Ended June 30, 2016 and 2015



 

 

 



 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY



 

Six Months Ended June 30, 2016 and 2015

 



 

 

 



 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 



 

Six Months Ended June 30, 2016 and 2015



 

 

 



 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



 

 

 

ITEM 2. 

 

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

29 



 

 

 



 

 

 

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

 



 

 

 



 

2


 

 





PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

DNB Financial Corporation and Subsidiary

Consolidated Statements of Financial Condition (Unaudited)







 

 

 

 

 



 

 

 

 

 



June 30,

 

December 31,

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

2016

 

2015

Assets

 

 

 

 

 

Cash and due from banks

$

20,146 

 

$

21,119 

Cash and cash equivalents

 

20,146 

 

 

21,119 

Available-for-sale investment securities at fair value (amortized cost of $147,645 and $153,559)

 

148,305 

 

 

152,379 

Held-to-maturity investment securities (fair value of $76,403 and $68,431)

 

74,835 

 

 

67,829 

Total investment securities

 

223,140 

 

 

220,208 

Loans

 

494,417 

 

 

481,758 

Allowance for credit losses

 

(5,247)

 

 

(4,935)

Net loans

 

489,170 

 

 

476,823 

Restricted stock

 

3,318 

 

 

3,447 

Office property and equipment, net

 

8,557 

 

 

6,806 

Accrued interest receivable

 

2,390 

 

 

2,410 

Other real estate owned & other repossessed property

 

2,952 

 

 

2,581 

Bank owned life insurance (BOLI)

 

9,436 

 

 

9,326 

Core deposit intangible

 

59 

 

 

66 

Net deferred taxes

 

2,930 

 

 

3,733 

Other assets

 

2,074 

 

 

2,299 

Total assets 

$

764,172 

 

$

748,818 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Liabilities

 

 

 

 

 

Non-interest-bearing deposits

$

135,212 

 

$

125,581 

Interest-bearing deposits:

 

 

 

 

 

NOW

 

185,279 

 

 

185,973 

Money market

 

149,108 

 

 

137,555 

Savings

 

75,236 

 

 

72,660 

Time

 

73,560 

 

 

66,018 

Brokered deposits

 

23,449 

 

 

18,488 

Total deposits 

 

641,844 

 

 

606,275 

Federal Home Loan Bank of Pittsburgh (FHLBP) advances

 

20,000 

 

 

30,000 

Repurchase agreements

 

17,748 

 

 

32,416 

Junior subordinated debentures

 

9,279 

 

 

9,279 

Subordinated debt

 

9,750 

 

 

9,750 

Other borrowings

 

442 

 

 

464 

Total borrowings

 

57,219 

 

 

81,909 

Accrued interest payable

 

377 

 

 

345 

Other liabilities

 

5,195 

 

 

4,801 

Total liabilities 

 

704,635 

 

 

693,330 

Stockholders’ Equity

 

 

 

 

 

Preferred stock, $10.00 par value;

 

 

 

 

 

1,000,000 shares authorized; $1,000 liquidation preference per share; 0 and 0 issued, respectively

 

 -

 

 

 -

Common stock, $1.00 par value;

 

 

 

 

 

10,000,000 shares authorized; 2,951,128 and 2,933,049 issued, respectively; 2,848,773 and 2,823,840 outstanding, respectively

 

2,972 

 

 

2,955 

Treasury stock, at cost; 102,355 and 109,209 shares, respectively

 

(1,890)

 

 

(2,015)

Surplus

 

35,521 

 

 

35,097 

Retained earnings

 

23,703 

 

 

21,436 

Accumulated other comprehensive loss

 

(769)

 

 

(1,985)

Total stockholders’ equity 

 

59,537 

 

 

55,488 

Total liabilities and stockholders’ equity 

$

764,172 

 

$

748,818 

See accompanying notes to unaudited consolidated financial statements.

3


 

 

DNB Financial Corporation and Subsidiary

Consolidated Statements of Income (Unaudited)

 





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Six Months Ended



June 30,

 

June 30,

(Dollars in thousands, except per share data)

2016

 

2015

 

2016

 

2015

Interest Income:

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

$

5,091 

 

$

5,011 

 

$

10,159 

 

$

9,923 

Interest and dividends on investment securities:

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

752 

 

 

759 

 

 

1,434 

 

 

1,494 

Exempt from federal taxes

 

294 

 

 

346 

 

 

628 

 

 

688 

Interest on cash and cash equivalents

 

43 

 

 

15 

 

 

64 

 

 

22 

Total interest and dividend income

 

6,180 

 

 

6,131 

 

 

12,285 

 

 

12,127 

Interest Expense:

 

 

 

 

 

 

 

 

 

 

 

Interest on NOW, money market and savings

 

194 

 

 

153 

 

 

358 

 

 

302 

Interest on time deposits

 

140 

 

 

98 

 

 

257 

 

 

207 

Interest on brokered deposits

 

71 

 

 

26 

 

 

133 

 

 

50 

Interest on FHLB advances

 

90 

 

 

197 

 

 

184 

 

 

391 

Interest on repurchase agreements

 

10 

 

 

10 

 

 

21 

 

 

19 

Interest on junior subordinated debentures

 

84 

 

 

73 

 

 

165 

 

 

147 

Interest on subordinated debt

 

103 

 

 

104 

 

 

207 

 

 

134 

Interest on other borrowings

 

16 

 

 

17 

 

 

33 

 

 

34 

Total interest expense

 

708 

 

 

678 

 

 

1,358 

 

 

1,284 

Net interest income

 

5,472 

 

 

5,453 

 

 

10,927 

 

 

10,843 

Provision for credit losses

 

200 

 

 

415 

 

 

530 

 

 

715 

Net interest income after provision for credit losses

 

5,272 

 

 

5,038 

 

 

10,397 

 

 

10,128 

Non-interest Income:

 

 

 

 

 

 

 

 

 

 

 

Service charges

 

240 

 

 

272 

 

 

547 

 

 

568 

Wealth management

 

441 

 

 

422 

 

 

838 

 

 

774 

Mortgage banking

 

81 

 

 

51 

 

 

113 

 

 

89 

Increase in cash surrender value of BOLI

 

55 

 

 

56 

 

 

110 

 

 

111 

Gain on sale of investment securities, net

 

203 

 

 

11 

 

 

234 

 

 

64 

Gain on sale of loans

 

 -

 

 

185 

 

 

39 

 

 

416 

Gains from insurance proceeds

 

 -

 

 

 -

 

 

1,150 

 

 

 -

Other fees

 

367 

 

 

341 

 

 

685 

 

 

651 

Total non-interest income

 

1,387 

 

 

1,338 

 

 

3,716 

 

 

2,673 

Non-interest Expense:

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

2,693 

 

 

2,638 

 

 

5,819 

 

 

5,282 

Furniture and equipment

 

342 

 

 

303 

 

 

671 

 

 

605 

Occupancy

 

467 

 

 

466 

 

 

935 

 

 

1,069 

Professional and consulting

 

333 

 

 

261 

 

 

642 

 

 

589 

Advertising and marketing

 

166 

 

 

170 

 

 

349 

 

 

339 

Printing and supplies

 

60 

 

 

39 

 

 

93 

 

 

87 

FDIC insurance

 

121 

 

 

124 

 

 

250 

 

 

247 

PA shares tax

 

157 

 

 

151 

 

 

319 

 

 

301 

Telecommunications

 

61 

 

 

60 

 

 

122 

 

 

121 

Postage

 

21 

 

 

22 

 

 

42 

 

 

45 

Loss on sale or write down of OREO, net

 

 

 

 -

 

 

 

 

 -

Due diligence and merger expense

 

275 

 

 

 -

 

 

463 

 

 

 -

Other expenses

 

472 

 

 

490 

 

 

881 

 

 

863 

Total non-interest expense

 

5,172 

 

 

4,724 

 

 

10,590 

 

 

9,548 

Income before income tax expense

 

1,487 

 

 

1,652 

 

 

3,523 

 

 

3,253 

Income tax expense

 

378 

 

 

417 

 

 

858 

 

 

766 

Net income

$

1,109 

 

$

1,235 

 

$

2,665 

 

$

2,487 

Preferred stock dividends and accretion of discount

 

 -

 

 

 

 

 -

 

 

34 

Net income available to common shareholders

$

1,109 

 

$

1,227 

 

$

2,665 

 

$

2,453 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.39 

 

$

0.44 

 

$

0.94 

 

$

0.88 

Diluted

$

0.39 

 

$

0.43 

 

$

0.93 

 

$

0.86 

Cash dividends per common share

$

0.07 

 

$

0.07 

 

$

0.14 

 

$

0.14 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 Basic

2,848,648 

 

2,802,292 

 

2,840,677 

 

2,794,283 

 Diluted

2,882,729 

 

2,847,638 

 

2,876,016 

 

2,840,380 

See accompanying notes to unaudited consolidated financial statements

4


 

 

DNB Financial Corporation and Subsidiary

Consolidated Statements of Comprehensive Income (Unaudited)







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Six Months Ended



June 30,

 

June 30,

(Dollars in thousands)

2016

 

2015

 

2016

 

2015

Net income

$

1,109 

 

$

1,235 

 

$

2,665 

 

$

2,487 

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) arising during the period

 

 

 

 

 

 

 

 

 

 

 

Before tax amount

 

605 

 

 

(1,140)

 

 

2,074 

 

 

(53)

Tax effect

 

(207)

 

 

388 

 

 

(706)

 

 

18 



 

398 

 

 

(752)

 

 

1,368 

 

 

(35)

Accretion of discount on AFS to HTM reclassification(1)

 

 

 

 

 

 

 

 

 

 

 

Before tax amount

 

 

 

 

 

 

 

Tax effect(2)

 

 -

 

 

 -

 

 

(1)

 

 

(1)



 

 

 

 

 

 

 

Less reclassification for gains included in net income

 

 

 

 

 

 

 

 

 

 

 

Before tax amount

 

(203)

 

 

(11)

 

 

(234)

 

 

(64)

Tax effect(2)

 

70 

 

 

 

 

80 

 

 

21 



 

(133)

 

 

(8)

 

 

(154)

 

 

(43)

Total other comprehensive income (loss)

 

266 

 

 

(759)

 

 

1,216 

 

 

(75)

Total comprehensive income

$

1,375 

 

$

476 

 

$

3,881 

 

$

2,412 

(1) Amounts are included in interest and dividends on investment securities in the consolidated statements of income.

 

 

 

 

 

 

(2) Amounts are included in income tax expense in the consolidated statements of income.

 

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.



5


 

 

DNB Financial Corportation and Subsidiary

Consolidated Statements of Stockholders’ Equity (Unaudited)



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

Accumulated

 

 



 

 

 

 

 

 

 

 

 

 

Other

 

 



Preferred

Common

Treasury

 

Retained

Comprehensive

 

 

(Dollars in thousands)

Stock

Stock

Stock

Surplus

Earnings

Loss

Total

Balance at January 1, 2016

$

 -

$

2,955 

$

(2,015)

$

35,097 

$

21,436 

$

(1,985)

$

55,488 

Net income for six months ended June 30, 2016

 

 -

 

 -

 

 -

 

 -

 

2,665 

 

 -

 

2,665 

Other comprehensive income

 

 -

 

 -

 

 -

 

 -

 

 -

 

1,216 

 

1,216 

Restricted stock compensation expense (18,079 shares vested)

 

 -

 

32 

 

 -

 

698 

 

 -

 

 -

 

730 

Taxes on share award vest

 

 -

 

(15)

 

 -

 

(421)

 

 -

 

 -

 

(436)

Tax benefit for restricted stock vest

 

 -

 

 -

 

 -

 

64 

 

 -

 

 -

 

64 

Cash dividends - common ($0.14 per share)

 

 -

 

 -

 

 -

 

 -

 

(398)

 

 -

 

(398)

Sale of treasury shares to 401(k) (4,288 shares)

 

 -

 

 -

 

78 

 

52 

 

 -

 

 -

 

130 

Sale of treasury shares to deferred comp. plan (2,566 shares)

 

 -

 

 -

 

47 

 

31 

 

 -

 

 -

 

78 

Balance at June 30, 2016

$

 -

$

2,972 

$

(1,890)

$

35,521 

$

23,703 

$

(769)

$

59,537 







 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

Accumulated

 

 



 

 

 

 

 

 

 

 

 

 

Other

 

 



Preferred

Common

Treasury

 

 

Retained

Comprehensive

 

 

(Dollars in thousands)

Stock

Stock

Stock

Surplus

Earnings

Loss

Total

Balance at January 1, 2015

$

13,000 

$

2,931 

$

(2,301)

$

34,745 

$

17,132 

$

(1,599)

$

63,908 

Net income for six months ended June 30, 2015

 

 -

 

 -

 

 -

 

 -

 

2,487 

 

 -

 

2,487 

Other comprehensive loss

 

 -

 

 -

 

 -

 

 -

 

 -

 

(75)

 

(75)

Redemption of preferred stock (9,750 shares)

 

(9,750)

 

 -

 

 -

 

 -

 

 -

 

 -

 

(9,750)

Restricted stock compensation expense

 

 -

 

 

 -

 

156 

 

 -

 

 -

 

165 

Exercise of stock options (95,834 shares)

 

 -

 

16 

 

 -

 

247 

 

 -

 

 -

 

263 

Taxes on stock option exercise and share award vest

 

 -

 

 -

 

 -

 

(152)

 

 -

 

 -

 

(152)

Cash dividends - common ($0.14 per share)

 

 -

 

 -

 

 -

 

 -

 

(391)

 

 -

 

(391)

Cash dividends SBLF preferred

 

 -

 

 -

 

 -

 

 -

 

(34)

 

 -

 

(34)

Sale of treasury shares to 401(k) (5,855 shares)

 

 -

 

 -

 

107 

 

31 

 

 -

 

 -

 

138 

Sale of treasury shares to deferred comp. plan (2,807 shares)

 

 -

 

 -

 

51 

 

14 

 

 -

 

 -

 

65 

Balance at June 30, 2015

$

3,250 

$

2,956 

$

(2,143)

$

35,041 

$

19,194 

$

(1,674)

$

56,624 

See accompanying notes to unaudited consolidated financial statements.

6


 

 

DNB Financial Corporation and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)







 

 

 

 



 

 

 

 



Six Months Ended



June 30,

(Dollars in thousands)

2016

2015

Cash Flows From Operating Activities:

 

 

 

 

Net income

$

2,665 

$

2,487 

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

 

 

 

 

Depreciation, amortization and accretion

 

743 

 

931 

Provision for credit losses

 

530 

 

715 

Stock based compensation

 

730 

 

165 

Net gain on sale of securities

 

(234)

 

(64)

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

 

 

 -

Earnings from investment in BOLI

 

(110)

 

(111)

Deferred tax expense (benefit)

 

176 

 

(424)

Proceeds from sales of loans

 

5,584 

 

12,049 

Loans originated for sale

 

(5,432)

 

(10,927)

Gain on sale of loans and mortgage banking income

 

(152)

 

(505)

Write off of property and equipment

 

 -

 

731 

Decrease (increase) in accrued interest receivable

 

20 

 

(135)

Decrease (increase) in other assets

 

226 

 

(614)

Increase in accrued interest payable

 

32 

 

Increase (decrease) in other liabilities

 

394 

 

(120)

Net Cash Provided By Operating Activities

 

5,176 

 

4,182 

Cash Flows From Investing Activities:

 

 

 

 

Activity in available-for-sale securities:

 

 

 

 

Sales

 

28,215 

 

9,731 

Maturities, repayments and calls

 

28,147 

 

15,844 

Purchases

 

(50,573)

 

(20,478)

Activity in held-to-maturity securities:

 

 

 

 

Maturities, repayments and calls

 

6,533 

 

1,006 

Purchases

 

(13,507)

 

(6,709)

Net decrease (increase) in restricted stock

 

129 

 

(277)

Net increase in loans

 

(12,877)

 

(18,346)

Purchases of property and equipment

 

(2,158)

 

(116)

Costs capitalized in OREO and other repossessed property

 

(735)

 

 -

Proceeds from sale of OREO and other repossessed property

 

360 

 

 -

Net Cash Used in Investing Activities

 

(16,466)

 

(19,345)

Cash Flows From Financing Activities:

 

 

 

 

Net increase in deposits

 

35,569 

 

21,293 

Repayment of FHLBP advances

 

(10,000)

 

 -

Net (decrease) increase in repurchase agreements

 

(14,668)

 

8,990 

Proceeds from issuance of subordinated debt

 

 -

 

9,750 

Repayment of other borrowings

 

(22)

 

(20)

Dividends paid

 

(398)

 

(425)

Proceeds from the exercise of stock options

 

 -

 

263 

Taxes on exercise of stock options

 

(436)

 

(152)

Tax benefit for restricted stock vest

 

64 

 

 -

Redemption of preferred stock

 

 -

 

(9,750)

Sale of treasury stock

 

208 

 

203 

Net Cash Provided by Financing Activities

 

10,317 

 

30,152 

Net Change in Cash and Cash Equivalents 

 

(973)

 

14,989 

Cash and Cash Equivalents at Beginning of Period 

 

21,119 

 

12,504 

Cash and Cash Equivalents at End of Period 

$

20,146 

$

27,493 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

Cash paid during the period for:

 

 

 

 

Interest

$

1,326 

$

1,280 

Income taxes

 

250 

 

1,427 

Supplemental Disclosure of Non-cash Flow Information:

 

 

 

 

Transfers from loans to real estate owned and other repossessed property

 

 -

 

1,101 

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 six months ended June 30, 2016 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, 2015



Subsequent Events-- Management has evaluated events and transactions occurring subsequent to June 30, 2016 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-  

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 is currently evaluating the impact of the pending adoption of the ASU on its consolidated financial statements.



In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting." This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public business entities, this ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods therein. DNB is currently evaluating the impact of this ASU on its consolidated financial statements and disclosures.



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. DNB  is currently evaluating the impact of this ASU on its consolidated financial statements and disclosures.





8


 

 

NOTE 2: INVESTMENT SECURITIES



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







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

June 30, 2016



 

Amortized

 

Unrealized

 

Unrealized

 

 

(Dollars in thousands)

 

Cost

 

Gains

 

Losses

 

Fair Value

Held To Maturity

 

 

 

 

 

 

 

 

US Government agency obligations

$

8,098 

$

521 

$

 -

$

8,619 

Government Sponsored Entities (GSE) mortgage-backed securities

 

2,459 

 

108 

 

 -

 

2,567 

Corporate bonds

 

12,887 

 

398 

 

(7)

 

13,278 

Collateralized mortgage obligations GSE

 

2,300 

 

43 

 

 -

 

2,343 

State and municipal taxable

 

1,009 

 

41 

 

 -

 

1,050 

State and municipal tax-exempt

 

48,082 

 

464 

 

 -

 

48,546 

Total

$

74,835 

$

1,575 

$

(7)

$

76,403 

    

 

 

 

 

 

 

 

 

Available For Sale

 

 

 

 

 

 

 

 

US Government agency obligations

$

54,442 

$

223 

$

 -

$

54,665 

GSE mortgage-backed securities

 

48,290 

 

425 

 

(1)

 

48,714 

Collateralized mortgage obligations GSE

 

14,706 

 

56 

 

(64)

 

14,698 

Corporate bonds

 

17,877 

 

90 

 

(90)

 

17,877 

State and municipal tax-exempt

 

12,330 

 

24 

 

(3)

 

12,351 

Total

$

147,645 

$

818 

$

(158)

$

148,305 









 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

December 31, 2015



 

Amortized

 

Unrealized

 

Unrealized

 

 

(Dollars in thousands)

 

Cost

 

Gains

 

Losses

 

Fair Value

Held To Maturity

 

 

 

 

 

 

 

 

US Government agency obligations

$

7,973 

$

320 

$

 -

$

8,293 

Government Sponsored Entities (GSE) mortgage-backed securities

 

2,759 

 

83 

 

 -

 

2,842 

Corporate bonds

 

11,518 

 

234 

 

(42)

 

11,710 

Collateralized mortgage obligations GSE

 

2,623 

 

 

(26)

 

2,606 

State and municipal tax-exempt

 

42,956 

 

300 

 

(276)

 

42,980 

Total

$

67,829 

$

946 

$

(344)

$

68,431 

    

 

 

 

 

 

 

 

 

Available For Sale

 

 

 

 

 

 

 

 

US Government agency obligations

$

58,460 

$

 -

$

(252)

$

58,208 

GSE mortgage-backed securities

 

40,663 

 

13 

 

(325)

 

40,351 

Collateralized mortgage obligations GSE

 

16,241 

 

 

(438)

 

15,806 

Corporate bonds

 

20,921 

 

 -

 

(350)

 

20,571 

State and municipal tax-exempt

 

17,274 

 

180 

 

(11)

 

17,443 

Total

$

153,559 

$

196 

$

(1,376)

$

152,379 



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 June 30, 2016 and December 31, 2015.

9


 

 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

June 30, 2016



 

 

 

 

 

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

 

12 Months

 

12 Months

Held To Maturity

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

1,987 

$

(7)

$

1,987 

$

(7)

$

 -

$