For further information, please contact:

Gerald F. Sopp CFO/Executive Vice-President

484.359.3138FOR IMMEDIATE RELEASE 

gsopp@dnbfirst.com (NasdaqCM: DNBF)

DNB Financial Corporation Reports Third Quarter 2016 Results

Downingtown PA., October 20, 2016 (GLOBENEWSWIRE)– DNB Financial Corporation (Nasdaq: DNBF), today reported net income available to common stockholders in accordance with generally accepted accounting principles (“GAAP”) of $1,000, or less than a penny per diluted share, for the quarter ending September 30, 2016, compared with $1.3 million, or $0.44 per diluted share, for the same quarter, last year. For the nine months ending September 30, 2016, net income available to common shareholders was $2.7 million, or $0.93 per diluted share, compared with $3.7 million, or $1.31 per diluted share for the corresponding prior year period.

DNB Financial Corporation (the “Company” or “DNB”) is the parent of DNB First, National Association, one of the first nationally-chartered community banks to serve the greater Philadelphia region.

On a core basis, the Company reported net income available to common stockholders of $1.2 million, or $0.42 per diluted share, for the quarter ending September 30, 2016 compared with $1.3 million, or $0.44 per diluted share, for the corresponding prior year period. Core earnings, which is a non-GAAP measure of net income, excludes merger-related expenses of $1.5 million, gains from insurance proceeds of $30,000, and an associated income tax adjustment of $259,000 for the three months ending September 30, 2016. Core earnings were $3.7 million, or $1.29 per diluted share, for the nine months ending September 30, 2016, compared with $3.7 million, or $1.31 per diluted share, for the same period, last year. Please see the Reconciliation of Non-GAAP Financial Measures on page 6 of the release. Non-GAAP financial measures include references to the terms “core” or “operating”.

William J. Hieb, President and CEO, commented, "Third quarter results represent good operating trends, which reflect our steadfast commitment to disciplined banking. We are particularly pleased with our solid loan and core deposit growth, continued stable credit quality, and wealth management business. On October 1, 2016, we successfully completed the acquisition of East River Bank and we are excited about the opportunities this combination provides us to grow our customer relationships in southeastern Pennsylvania.”



Highlights

Income Statement Summary

Based on core earnings of $1.2 million, the Company’s performance for the quarter ending September 30, 2016 generated a return on average assets (“ROAA”) and return on average tangible common equity (“ROTCE”) of 0.63% and 7.98%, respectively. The core ROAA and ROTCE were 0.68% and 8.75%, respectively, for the same quarter, last year. Please see the “Reconciliation of Non-GAAP Financial Measures” on page 6 of the release.

Total interest income for the three months ending September 30, 2016 was $6.3 million, which represented a $97,000 increase from the quarter ending June 30, 2016, and a $116,000 increase for the three months ending September 30, 2015. The year-over-year increase was primarily due to a 6.1% rise in total average loans, which offset a seven basis point decline in the net interest margin. On a sequential quarter basis, total average loans increased $10.2 million, or 2.1% (not annualized). The weighted average yield on total interest-earning assets was 3.47% for the quarter ending September 30, 2016, compared with 3.46% for the previous quarter.

Total interest expense increased $52,000 to $760,000 for the third quarter of 2016 from $708,000 for the second quarter of 2016. The sequential quarter increase was primarily due to a two basis point rise in the weighted average cost of interest-bearing liabilities to 0.43%. The increase was the result of a $13.6 million increase in the average Money Market account balances due to a special interest rate promotion during the quarter, offset in part by a $15.6 million decrease in average NOW account balances. Total interest expense also went up $49,000, compared with the three months ending September 30, 2015. The year-over-year increase was primarily due to a higher amount of interest-bearing liabilities as the weighted average cost of funds was 0.42%, for the same quarter, last year.

On both a year-over-year and sequential quarter basis, the net interest margin remained relatively stable despite continuing pressure from ultra-low interest rates and the flattening yield curve. The net interest

margin was 3.06% for the third quarter of 2016, compared with 3.13% for the same quarter, last year. On a sequential quarter basis, the net interest margin slipped only two basis points from 3.08% for the three months ending June 30, 2016. 

The loan loss provision was $100,000 for both the most recent quarter and the three months ended September 30, 2015. Net loan charge-offs were only $44,000, or 0.03% (annualized) of total average loans, for the September 30, 2016 quarter. As of September 30, 2016, the Company’s allowance for credit losses was $5.3 million and represented 1.04% of total loans.

Total non-interest income for the third quarter of 2016 was $1.4 million, compared with $1.4 million for the prior quarter and $1.0 million for the quarter ended September 30, 2015. Total non-interest income for the third quarter of 2016 included a $30,000 gain from the insurance proceeds associated with the fire at our West Chester location. Wealth management fees were $393,000 for the third quarter of 2016 compared with $440,000 for the second quarter of 2016, and $317,000 for the quarter ending September 30, 2015. Wealth management fees represented approximately one-third of total fee income. Gains from the sale of investment securities were $197,000 for the three months ending September 30, 2016, compared with $203,000 for the quarter ending June 30, 2016, and $10,000 for the quarter ended September 30, 2015.

Non-interest expense was $6.7 million for the third quarter of 2016, compared with $5.2 million for the second quarter of 2016, and $4.8 million for the quarter ending September 30, 2015. Non-interest expense for the quarter ending September 30, 2016 included merger-related costs of $1.5 million associated with East River Bank. Excluding these items, non-interest expense was $5.2 million for the quarter ending September 30, 2016. On a sequential quarter basis, salary and employee benefits expense increased $124,000, or 4.6% (not annualized), primarily due to new hires and incentives. Occupancy and equipment increased $136,000, or 16.8% (not annualized), largely due to the West Chester branch office being reopened following a fire, which occurred in the second quarter of 2015. Rent and depreciation expense had been suspended since that time. Please see the Reconciliation of Non-GAAP Financial Measures on page 6 of the release.

Balance Sheet Summary

As of September 30, 2016, total assets were $770.3 million compared with $748.8 million as of December 31, 2015. On a sequential quarter basis, total assets increased $6.1 million, or 0.80% (not annualized), as loan growth was offset by a decrease in investment securities. Total deposits increased $3.7 million, or 0.58% (not annualized), on a sequential quarter basis. As of September 30, 2016, total shareholders’ equity was $59.2 million, compared with $55.5 million as of December 31, 2015. Tangible book value per share was $20.73 as of September 30, 2016 compared with $19.58 as of December 31, 2015.

On a sequential quarter basis, total loans increased $15.1 million, or 3.0% (not annualized), to $509.5 million as of September 30, 2016. As of the same date, total loans were 66.1% of total assets. The loan growth occurred primarily in the commercial real estate and consumer loan categories. The Company remains disciplined and intends to maintain conservative underwriting standards while growing commercial-oriented loans in a competitive market.

On a sequential quarter basis, total core deposits increased $5.5 million to $550.3 million and were 85.2% of total deposits as of September 30, 2016. Total deposits were $645.5 million as of September 30, 2016, compared with $606.3 million as of December 31, 2015.

Capital ratios continue to exceed regulatory standards for well capitalized institutions. As of September 30, 2016, the common equity tier 1 ratio was 10.50%, the tier 1 leverage ratio was 9.1%, the tier 1 risk-based capital ratio was 12.1%, and the total risk-based capital ratio was 14.7%. As of the same date, the tangible equity-to-tangible assets ratio was 7.7%. 

Asset Quality Summary

Asset quality remained solid as net charge-offs were only 0.03% of total average loans for the quarter ending September 30, 2016, compared with 0.10% for the quarter ending June 30, 2016, and 0.41% for the quarter ending September 30, 2015. Total non-performing assets, including loans and other real estate property, were $9.9 million as of September 30, 2016, compared with $10.5 million as of June 30, 2016 and $7.7 million as of December 31, 2015. The ratio of non-performing loans to total loans was 1.36% as of September 30, 2016, compared with 1.54% as of June 30, 2016. As of September 30, 2016, the allowance for credit losses to total loans ratio was 1.04%.

Interest Rate Risk Management

DNB's strategy has been to seek shorter duration over yield in its lending and investing activities and lengthen duration over rate 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. To date, model results indicate that interest rate risk remains moderate and within policy guidelines. 

General Information



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/.



Forward-Looking Statements



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, conditions relating to DNB and East River Bank (“East River”) or other effects of the merger of DNB and East River. 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: difficulties and delays in integrating the East River business or fully realizing anticipated cost savings and other benefits of the merger; business disruptions following the merger; the strength of the United States economy in general and the strength of the local economies in which DNB and East River conduct their 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. 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.



For a complete discussion of the assumptions, risks and uncertainties related to our business, you are encouraged to review our filings with the SEC, including our most recent annual report on Form 10-K, as supplemented by our quarterly or other reports subsequently filed with the SEC.





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