DNB Financial shares opened lower Thursday, but recovered to rise by eight cents and close at $34 a share, after the Downingtown-based bank reported higher quarterly and full-year profits in its year-end 2018 earnings report, including a robust 13 percent growth in commercial loans, to $779 million.

DNB, the biggest bank in Pennsylvania’s richest county, is under attack by out-of-state private investors, who allege corporate governance failures, and want the board to consider selling the bank to new owners.

In calling for change, the dissidents cited the “lackluster” stock performance of DNB and its “insulting” treatment of public shareholders when the bank paid out $432,000 last year to a former executive who the dissidents say wasn’t entitled to it.

On Wednesday, shares of DNB, based in Downingtown, were up $1.59 The stock rose after J. Abbott R. Cooper, of the resort town of Jupiter, Fla., and John B. Thompson II, of New York’s Upper East Side, filed a public notice with the SEC on Jan. 17, attacking the bank’s management. Even with that jump, the share price remained below the stock’s all-time highs of more than $35 a share last September and October, before the market’s late-year plunge.

NEW 1/24: Cooper and Thompson, former investment bankers, direct a fund called CT Opportunity Partners I LP. They have acquired 6.5 percent of DNB stock, ranking them among the bank’s largest owners. If DNB management, headed by chief executive William J. Hieb and board chairman James H. Thornton, a Connecticut hospital consultant, were to resist their demands, the dissident investors could try to rally other shareholders to elect new directors and pressure management to give in.

“Bill Hieb’s a good guy. I’m surprised [DNB] is a target, and that [the activists] seem to have gone off aggressively with this, instead of meeting with management first,” said Frederick “Ted” Peters, manager of the Bluestone Financial Institutions Fund, which invests in banks, and former CEO of Bryn Mawr Trust Co. Peters counseled against reading too much into day-to-day share movements.

““We have a simple formula,” said Thompson in an interview Thursday. “Put in their growth rate and see where they are going over the next few years. How does that look compared to selling? We want to speak direct to the board."

Management should be acting "in the best interest of stockholders,” Thompson added. He and Cooper said Hieb had a reputation for rejecting suggestions from larger banks that they meet to talk about selling DNB. Cooper agreed that those reports were “second hand,” but added that DNB’s recent track record fell short of the “A grade” that would guarantee the company’s independence and demonstrate the leadership that has helped a few local banks, such as WSFS Corp., of Wilmington, to diversify and boosted profits, keeping shareholders happy with their continued independence.

Cooper added that DNB’s board includes veteran bank investors who he said should be open to sale offers. “(George) Dan O’Donnell, for example, was head of Dechert,” the big Philadelphia law firm, he said. “Some of those guys are not afraid to sell banks. These are sophisticated investors. Would the bank be better off with one of those guys stepping in?”

He also downplayed the bank’s recent commercial loan growth, noting that DNB has yet to clarify whether these included local business loans that require hometown-bank lender initiative, or merely the “empty calories” of commercial real estate projects that any lender could back.

1/23: Peters said the bank’s future will depend on whether its institutional investors can be persuaded by the activists that it’s time to force a sale. He said Bryn Mawr Trust, Univest, Fulton and other eastern Pennsylvania banks “would love to buy” DNB if it goes on the market.

“Given the lackluster performance of [DNB Financial’s] common stock” since buying Philadelphia-based East River Bank in 2016, plus DNB’s “lack of strategic direction and governance failures,” Thompson and Cooper demanded that DNB “immediately [hire] independent, nationally recognized investment bankers” in order to “review all strategic alternatives, including a sale,” and evaluate whether this would be more profitable for shareholders than trying to stay independent, given risks to the national and Philadelphia-area economy.

DNB avoided responding to the dissidents' specific allegations, but added that the bank was sympathetic to their goal: “We welcome open communications with our shareholders and we consider ideas that may support the creation of shareholder value,” according to an email statement Wednesday from Jonathan T. McGrain, senior vice president and director of sales and marketing.

With 10 branches in Chester County, two in Philadelphia and three in other suburbs, DNB manages Chester County deposits totaling nearly $700 million, up from $400 million 10 years ago. That’s about 6.7 percent of all Chester County bank branch deposits, up from 6.3 percent a decade earlier.

But DNB has lost ground in Philadelphia since paying $49 million for East River Bank, one of the smallest of the city’s dwindling list of community banks, 2½ years ago. Deposits at the former East River branches have slipped from $229 million at four offices in mid-2016, to $183 million at three branches in mid-2018.

The bank has told branch staff and depositors it plans to close its smallest city branch, at 36 N. 3rd St. — near the center of “N3rd Street,” a hub of the city’s tech community — effective April 19. “I will not be staying with the bank,” said customer Robert Baer Cohen, an attorney who was dismayed to note the bank did not initially offer to refund prepayments for branch services such as safe-deposit boxes. A manager later promised repayments.

Last year, senior executives Christopher P. McGill, who had sold Philadelphia’s East River Bank to DNB in 2016, and chief banking officer Vince Liuzzi, a Wells Fargo veteran, left DNB. McGill is now an executive at rival Bryn Mawr Trust.

Liuzzi collected $433,500 in DNB severance pay, which Cooper and Thompson in their filing say Liuzzi “was not contractually entitled to.” They refer to the payment as a “governance failure,” which DNB tried to justify with a “false” claim the company had gone through a “change in control” that would have triggered severance payments.

DNB remained independent, while larger Chester County banks were absorbed by out-of-town lenders such as Wells Fargo and BB&T, under its longtime chief executive and board chairman, William S. Latoff, before his death in 2016.

Univest shares opened up more than 7 percent on Thursday after the company reported higher than expected profits Wednesday night.

Editor’s note: Story updated at 9:50 a.m. on Jan. 24 with DNB’s latest quarterly earnings.