• Total loans increased 2.6% (not annualized) on a sequential quarter basis and 7.4% (not annualized) since December 31, 2017.
  
  
• Asset quality remained excellent.  Net recoveries were 0.12% (annualized) of total average loans for the third quarter of 2018, and non-performing loans were only 0.71% of total loans at September 30, 2018.
  
  
• On a sequential quarter basis, net interest income increased $83,000 to $9.2 million, primarily due to commercial loan growth.  The net interest margin was fairly stable at 3.39% for the third quarter as the aforementioned loan growth and a two basis point rise in the yield on average interest-earning assets offset an eight basis point increase in the weighted average cost of interest-bearing liabilities.
  
  
• Wealth management fees increased to $542,000 for the third quarter of 2018, compared with $512,000 and $411,000 for the quarters ending June 30, 2018 and September 30, 2017, respectively.  Wealth management fees represented approximately 40% of total fee income for the third quarter of 2018.
  
  
• The Company paid a quarterly cash dividend of $0.07 per share on September 19, 2018.

Net interest income for the three months ending September 30, 2018 was $9.2 million, which represented an $83,000 increase from the quarter ending June 30, 2018, and a $355,000 decrease from the quarter ending September 30, 2017.  The net interest margin for third quarter of 2018 was 3.39%; and was fairly stable on a sequential quarter basis.  The year-over-year net interest margin decline of 33 basis points was primarily due to a $466,000 net reduction in purchase accounting marks and the higher cost of interest-bearing liabilities, which was partially offset by a $70.3 million increase in total average loans. For the third quarters of 2018 and 2017, the weighted average yield on total interest-earning assets was stable at 4.30%, which included purchase accounting marks. 

Total interest expense was $2.5 million for the three months ending September 30, 2018, compared with $2.2 million for the three months ending June 30, 2018, and $1.5 million for the third quarter of 2017.  The weighted average rate paid for interest-bearing liabilities was 0.98%, 0.90% and 0.61% for the quarters ending September 30, 2018, June 30, 2018, and September 30, 2017, respectively.  The rise in the weighted average rate was primarily due to an overall increase in market interest rates.

The provision for credit losses was $100,000 for the third quarter of 2018, compared with $375,000 for both of the quarters ending June 30, 2018 and September 30, 2017.  As of September 30, 2018, the allowance for credit losses was $6.6 million and represented 0.72% of total loans.  Loans acquired in connection with the purchase of East River Bank in 2016 were recorded at fair value based on an initial estimate of expected cash flows, including a reduction for estimated credit losses, and without carryover of the respective portfolio's historical allowance for credit losses. 

As of September 30, 2018, total assets were $1.1 billion.  Since December 31, 2017, total assets increased $46.2 million, or 4.3% (not annualized).  Total loan growth of $62.4 million, or 7.4% (not annualized) was partially offset by a $12.9 million, or 7.4% (not annualized) decrease in total investment securities.  Total deposits increased $78.7 million, or 9.1% (not annualized) since December 31, 2017, mainly due to growth in NOW, time, and brokered deposits.  As of September 30, 2018, total shareholders' equity was $108.1 million, compared with $101.9 million as of December 31, 2017.  Tangible book value per share (a non-GAAP measure) was $21.38 as of September 30, 2018, compared with $20.06 as of December 31, 2017. See Reconciliation of Non-GAAP Financial Measures on page 10.

Total loans were $908.3 million, or 80.5% of total assets, as of September 30, 2018.  As of September 30, 2018, commercial loans, a key strategic emphasis, totaled $746.8 million and represented 82.2% of total loans.  Total commercial loans increased $57.4 million, or 8.3% (not annualized) since December 31, 2017.  Of this total, commercial mortgage loans increased $39.8 million, or 8.2%, commercial business loans increased $11.3 million, or 8.7%, and commercial construction loans increased $6.3 million, or 8.4%.  Residential mortgage loans increased nearly 10% or $9.1 million since January 1, 2018.  Consumer loans, however, declined $4.1 million, or 6.6%, over the same time period. 

On a sequential quarter basis, total core deposits were relatively stable and were 73.3% of total deposits as of September 30, 2018.  As of the same date, non-interest bearing deposits were 17.9% of total deposits.  The amount of time deposits increased $39.3 million, or 34.2%, through the third quarter of 2018. The Company used these deposits to help fund loan growth due to their more favorable rates and maturities compared with other funding sources.  As of September 30, 2018, the loan-to-deposit ratio was 96.6%.

Capital ratios continue to exceed all regulatory guidelines.  As of September 30, 2018, the tier 1 leverage ratio was 9.48%, the tier 1 risk-based capital ratio was 11.93%, the common equity tier 1 risk-based capital ratio was 10.91% and the total risk based capital ratio was 13.83%.  As of the same date, the tangible common equity-to-tangible assets ratio (a non-GAAP measure) was 8.29%.  Intangible assets and goodwill totaled $15.9 million as of September 30, 2018. See Reconciliation of Non-GAAP Financial Measures on page 10.

Asset quality remained strong as net recoveries were 0.12% (annualized) of total average loans for the quarter ending September 30, 2018 (recoveries of $309,000, offset by charge-offs of $38,000). Total non-performing assets, including loans and other real estate property, were $11.5 million as of September 30, 2018, compared with $11.9 million as of June 30, 2018, and $12.6 million as of December 31, 2017.  The ratio of non-performing loans to total loans was 0.71% compared with 0.76% as of June 30, 2018 and 0.89% as of December 31, 2017.    

DNB's strategy has been to seek shorter duration over yield in its lending and investing activities and lengthen duration in its financing activities to minimize interest rate risk.  The Company also strives to offer products and services that develop strong relationships to retain core deposits. The Bank has an Asset Liability Management Committee that actively monitors and manages the bank's interest rate exposure using simulation models and gap analysis. The Committee's primary objective is to minimize the adverse impact of changes in interest rates on net interest income, while maximizing earnings.  Simulation model results show moderate liability sensitivity to rising rates in 100, 200, 300 and 400 basis point shock scenarios. Rate changes ramped in over 24 months also show moderate liability sensitivity.

The income statement summary and selected financial data contains non-GAAP financial measures calculated using non-GAAP amounts. These measures are tangible book value per common share, return on average tangible equity and tangible equity to tangible assets. Tangible book value per share adjusts the numerator by the amount of Goodwill and Other Intangible Assets (reduction of Shareholders' Equity). Return on average tangible equity adjusts the denominator by the amount of Goodwill and Other Intangible Assets (reduction of Shareholders' Equity). Tangible equity to tangible assets adjusts the numerator by the amount of Goodwill and Other Intangible Assets (reduction of Shareholders' Equity) and adjust the denominator by the amount of Goodwill and Other Intangible Assets (reduction of Total Assets). Management uses non-GAAP measures to present historical periods comparable to the current period presentation. In addition, management believes the use of non-GAAP measures provides additional clarity when assessing our financial results and use of equity. Disclosures of this type should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities.

DNB Financial Corporation is a bank holding company whose bank subsidiary, DNB First, National Association, is a community bank headquartered in Downingtown, Pennsylvania with 15 locations. DNB First, which was founded in 1860, provides a broad array of consumer and business banking products, and offers brokerage and insurance services through DNB Investments & Insurance, and investment management services through DNB Investment Management & Trust. 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 https://www.dnbfirst.com. DNB's Investor Relations site can be found at http://investors.dnbfirst.com/.

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, expectations or predictions of future financial or business performance. These forward-looking statements include statements with respect to DNB's beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, that are subject to significant risks and uncertainties, and are subject to change based on various factors (some of which are beyond DNB's control). The words "may," "could," "should," "would," "will," "believe," "anticipate," "estimate," "expect," "intend," "plan" and similar expressions are intended to identify forward-looking statements.

In addition to factors previously disclosed in the reports filed by DNB with the Securities and Exchange Commission (the "SEC") and those identified elsewhere in this document, the following factors, among others, could cause actual results to differ materially from forward looking statements or historical performance: the strength of the United States economy in general and the strength of the local economies in which DNB conducts its operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; the downgrade, and any future downgrades, in the credit rating of the U.S. Government and federal agencies; inflation, interest rate, market and monetary fluctuations; the timely development of and acceptance of new products and services and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services; the willingness of users to substitute competitors' products and services for DNB's products and services; the success of DNB in gaining regulatory approval of its products and services, when required; the impact of changes in laws and regulations applicable to financial institutions (including laws concerning taxes, banking, securities and insurance); technological changes; additional acquisitions; changes in consumer spending and saving habits; the nature, extent, and timing of governmental actions and reforms; and the success of DNB at managing the risks involved in the foregoing. Further, DNB's expectations with respect to the effects of the new tax law could be affected by future clarifications, amendments, and interpretations of such law. Annualized, pro forma, projected and estimated numbers presented herein are presented for illustrative purpose only, are not forecasts and may not reflect actual results.

DNB cautions that the foregoing list of important factors is not exclusive. Readers are also cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date of this press release, even if subsequently made available by DNB on its website or otherwise. DNB does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of DNB to reflect events or circumstances occurring after the date of this press release.