DOWNINGTOWN, Pa., Jan. 26, 2011 (GLOBE NEWSWIRE) -- DNB Financial Corporation ("DNB") (Nasdaq:DNBF), parent of DNB First, National Association, the oldest National Bank in the greater Philadelphia region, celebrating its 150th anniversary, reported a 123.00% increase in net income for the fourth quarter of 2010 compared to the same period of 2009 and a 137.00% increase for the full year. Net income for the three and twelve months ended December 31, 2010 was $1.1 million and $3.7 million, respectively, compared to $474,000 and $1.5 million for the same periods of 2009. Earnings per common share for the fourth quarter of 2010 were $0.34 on a fully diluted basis compared to $0.12 for the same period of 2009. Earnings per common share for the twelve months ended December 31, 2010 was $1.16 on a fully diluted basis compared to $0.38 for the same period of 2009.
Core earnings, which is a non-GAAP measure of net income excluding gains and losses on the sale of securities and prepayment penalties, for the three and twelve months ended December 31, 2010 were $645,000 and $2.7 million, up substantially from $118,000 and $649,000 for the same periods of 2009. The Summary of Financial Statistics section in this report includes a reconciliation of core earnings to the corresponding GAAP financial measure.
William S. Latoff, Chairman and CEO, said, "We are very pleased to end the year in such a strong position. Our focused and prudent approach has served us well, allowing us to restructure the balance sheet, while continuing to build capital. We have significantly reduced high cost borrowings and CDs and funded loan growth with core deposits and capital. We have controlled non-interest expenses and made investments in core business lines. These strategies leave us well positioned to benefit from an improving economy in 2011 and beyond. We continue to believe that consistency, stability and a focus on core earnings and balance sheet strength are critical success factors in today's challenging economic environment."
During the three and twelve months ended December 31, 2010, net interest income rose to $4.9 million and $19.0 million respectively, compared to $4.1 million and $15.3 million for the same periods of 2009. The increase for both periods was due to higher levels of loan balances combined with a reduction in interest expense. Outstanding loans at December 31, 2010 increased 10.22%, or $36.7 million over December 31, 2009. The reduction in interest expense was due to lower rates on interest-bearing deposits and the paydown of $28.0 million of FHLB borrowings in the year. The net interest margin for the three-month period ended December 31, 2010 was 3.31%, a 60 basis point improvement over the same period of 2009. The net interest margin for the twelve months ended December 31, 2010 was 3.20%, a 49 basis point increase over 2009.
Non-interest income for the three and twelve month periods ended December 31, 2010 improved to $1.5 million and $5.4 million respectively, compared to $1.3 million and $4.5 million for the same periods of 2009. Included in non-interest income were gains on the sale of securities of $633,000 and $540,000 for the respective quarterly periods of 2010 and 2009 and $2.0 million and $1.4 million for the respective twelve month periods. DNB employs a defensive and conservative approach to balance sheet management as a hedge against rising interest rates, by investing in securities with short durations, strong cash flows, and low price volatility. This approach allows us to grow loans and at the same time use gains in the investment portfolio to offset lower yields and non-recurring costs. Absent the gains on the sale of securities, non-interest income was $886,000 compared to $766,000 and $3.4 million compared to $3.1 million for the respective quarterly and twelve month periods.
Non-interest expense for the three months ended December 31, 2010 declined approximately $120,000 or 2.86%, compared to the fourth quarter of 2009. A decline in salaries and employee benefits due to staff reductions accounted for most of the variance. For the year, non-interest expenses increased 1.88% or $313,000 over 2009, but included pre-payment penalties amounting to approximately $560,000 for the pre-payment of $18.0 million of high cost FHLB borrowings in the first quarter. Absent these penalties, non-interest expenses declined approximately $247,000 or 1.49% compared to 2009.
William J. Hieb, President and COO, said, "As we move forward, we won't lose sight of the continued importance of expense control. We believe we have instilled that sense of ownership and pride that makes controlling costs a part of our daily operations."
Total assets were reduced by $31.9 million, to $602.3 million at December 31, 2010 compared to $634.2 million at December 31, 2009. The overall decline in assets was part of DNB's strategy to reduce the cost of funds and improve core earnings by substituting loans for investment securities. The reduction was due to a $17.5 million decrease in cash and cash equivalents and a $49.3 million decrease in investment securities, offset by a $36.7 million increase in net loans and leases.
Deposits declined by $14.6 million, or 2.88%, to $492.7 million at December 31, 2010 compared to $507.3 million at December 31, 2009. Core deposits, i.e., demand deposits, money market accounts, NOW and savings accounts, increased $18.3 million in aggregate or 5.44%, while time deposits declined $32.9 million or 19.22%. DNB's composite cost of funds for the fourth quarter of 2010 dropped 71 basis points to 1.05% compared to 1.76% for the three months ended December 31, 2009.
Capital remained strong at the end of the fourth quarter of 2010, as DNB's tier 1 leverage ratio stood at 9.25% and its total risk-based capital ratio stood at 14.28%, well above the levels of 5.00% and 10.00% respectively to be deemed "well capitalized" for regulatory purposes. These are levels management feels are appropriate for current market conditions. Shareholder's equity increased $2.3 million to $45.2 million at December 31, 2010 compared to December 31, 2009, reflecting our solid earnings growth.
Asset quality improved significantly during the year. The level of non-performing loans at 1.82% on December 31, 2010 compares to 2.55% a year earlier. During the fourth quarter of 2010, DNB provided $775,000 for credit losses compared to $625,000 for the same period in 2009. For the respective twelve month periods of 2010 and 2009, DNB provided $2.2 million and $1.3 million. The allowance for credit losses was $5.9 million at December 31, 2010 compared to $5.5 million at December 31, 2009. This improved our coverage ratio, defined as the allowance for credit losses as a percentage of non-performing loans, from 59.65% a year ago to 81.46% on December 31, 2010.
Chairman Latoff concluded, "We have always been committed to our market and have sought to help businesses grow and prosper by providing the products and services needed even in the most challenging of times. We have practiced sound underwriting standards and focused on balance sheet strength, while protecting our depositors and shareholders. We will continue these strategies as we enter the new decade."
DNB Financial Corporation is a bank holding company whose bank subsidiary, DNB First, National Association, is a community bank headquartered in Downingtown, Pennsylvania with 13 locations. Founded in 1860, DNB First is the oldest National Bank in the greater Philadelphia region. In addition to providing a broad array of consumer and business banking products, DNB offers brokerage and insurance services through DNB Financial Services, and trust services through DNB Advisors. DNB Financial Corporation's shares are traded on Nasdaq's Capital Market under the symbol: DNBF. We invite our customers and shareholders to visit our website at.
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